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[Federal Register Volume 74, Number 168 (Tuesday, September 1, 2009)]
[Rules and Regulations]
[Pages 45093-45100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-21034]

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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
week.

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Federal Register / Vol. 74, No. 168 / Tuesday, September 1, 2009 / 
Rules and Regulations

[[Page 45093]]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 370

RIN 3064-AD37

Final Rule Regarding Limited Amendment of the Temporary Liquidity 
Guarantee Program To Extend the Transaction Account Guarantee Program 
With Modified Fee Structure

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: To assure an orderly phase out of the Transaction Account 
Guarantee (TAG) component of the Temporary Liquidity Guarantee Program 
(TLGP), the FDIC is extending the TAG program for six months until June 
30, 2010. Each insured depository institution (IDI) that participates 
in the extended TAG program will be subject to increased fees during 
the extension period for the FDIC's guarantee of qualifying 
noninterest-bearing transaction accounts. However, each IDI that is 
currently participating in the TAG program will have an opportunity to 
opt out of the extended TAG program. Each IDI that is currently 
participating in the TAG program must review and update its disclosure 
postings and notices to accurately reflect whether it is participating 
in the extended TAG program.

DATES: The Final rule becomes effective on October 1, 2009.

FOR FURTHER INFORMATION CONTACT: Christopher L. Hencke, Counsel, Legal 
Division, (202) 898-8839 or [email protected]; A. Ann Johnson, Counsel, 
Legal Division, (202) 898-3573 or [email protected]; Robert C. Fick, 
Counsel, Legal Division, (202) 898-8962 or [email protected]; Joe DiNuzzo, 
Counsel, Legal Division, (202) 898-7349 or [email protected]; Lisa D 
Arquette, Associate Director, Division of Supervision and Consumer 
Protection, (202) 898-8633 or [email protected]; Donna Saulnier, 
Manager, Assessment Policy Section, Division of Finance, (703) 562-6167 
or [email protected]; or Munsell St. Clair, Chief, Bank and Regulatory 
Policy Section, Division of Insurance and Research, (202) 898-8967 or 
[email protected].

SUPPLEMENTARY INFORMATION

I. Background

    The FDIC established the TLGP in October 2008 following a 
determination of systemic risk by the Secretary of the Treasury (after 
consultation with the President) that was supported by recommendations 
from the FDIC and the Board of Governors of the Federal Reserve System 
(Federal Reserve).\1\ The TLGP is part of a coordinated effort by the 
FDIC, the U.S. Department of the Treasury (Treasury), and the Federal 
Reserve to address unprecedented disruptions in credit markets and the 
resultant inability of financial institutions to fund themselves and 
make loans to creditworthy borrowers.
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    \1\ See Section 13(c)(4)(G) of the Federal Deposit Insurance Act 
(FDI Act), 12 U.S.C. 1823(c)(4)(G). The determination of systemic 
risk authorized the FDIC to take actions to avoid or mitigate 
serious adverse effects on economic conditions or financial 
stability, and the FDIC implemented the TLGP in response. Section 
9(a) Tenth of the FDI Act, 12 U.S.C. 1819(a)Tenth, provides 
additional authority for the establishment of the TLGP.
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    On October 23, 2008, the FDIC's Board of Directors (Board) 
authorized the publication in the Federal Register of an interim rule 
that outlined the structure of the TLGP.\2\ Designed to assist in the 
stabilization of the nation's financial system, the FDIC's TLGP is 
composed of two distinct components: The Debt Guarantee Program (DGP) 
and the TAG program. Pursuant to the DGP the FDIC guarantees certain 
senior unsecured debt issued by participating entities. Pursuant to the 
TAG program the FDIC guarantees all funds held in qualifying 
noninterest-bearing transaction accounts at participating IDIs.
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    \2\ 73 FR 64179 (October 29, 2008). The Final Rule was published 
in the Federal Register on November 26, 2008. 73 FR 72244 (November 
26, 2008).
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    The TAG program was originally scheduled to expire on December 31, 
2009.\3\ Over 7,100 IDIs participate in the TAG program, and the FDIC 
has guaranteed an estimated $700 billion of deposits in noninterest-
bearing transaction accounts that would not otherwise be insured. Under 
the TAG program each IDI that offers noninterest-bearing transaction 
accounts is required to post a conspicuous notice in the lobby of its 
main office and each branch office, and on its Web site, if applicable, 
that discloses whether the IDI is participating in the TAG program.\4\ 
Disclosures for participating IDIs must contain a statement that 
indicates that all noninterest-bearing transaction accounts are fully 
guaranteed by the FDIC.\5\ In addition, even those IDIs that are not 
participating in the TAG program are required to disclose that deposits 
in noninterest-bearing transaction accounts continue to be insured for 
up to $250,000, pursuant to the FDIC's general deposit insurance 
rules.\6\ At this time, IDIs participating in the TAG program pay 
quarterly an annualized 10 basis point assessment on any deposit 
amounts that exceed the existing deposit insurance limit.\7\
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    \3\ The other component of the TLGP, the DGP, initially 
permitted participating entities to issue FDIC-guaranteed senior 
unsecured debt until June 30, 2009, with the FDIC's guarantee for 
such debt to expire on the earlier of the maturity of the debt (or 
the conversion date, for mandatory convertible debt) or June 30, 
2012. To reduce market disruption at the conclusion of the DGP and 
to facilitate the orderly phase-out of the program, the Board issued 
a final rule that generally extended for four months the period 
during which participating entities could issue FDIC-guaranteed 
debt. 74 FR 26521 (June 3, 2009). All IDIs and those other 
participating entities that had issued FDIC-guaranteed debt on or 
before April 1, 2009, were permitted to participate in the extended 
DGP without application to the FDIC. Other participating entities 
that were specifically approved by the FDIC also could participate 
in the extended DGP. At the same time, the FDIC extended the 
expiration of the guarantee period from June 30, 2012 to December 
31, 2012. As a result, participating entities may issue FDIC-
guaranteed, debt through and including October 31, 2009, and the 
FDIC's guarantee for such debt expires on the earliest of the 
mandatory convertible debt, the stated date of maturity, or December 
31, 2012.
    \4\ 12 CFR 370.5(h)(5).
    \5\ Id.
    \6\ Id.
    \7\ 12 CFR 370.7(c).
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II. The Notice of Proposed Rulemaking

    As with those entities participating in the DGP, the FDIC is 
committed to providing an orderly phase-out of the TAG program for 
participating IDIs and their depositors. To that end, the Board 
authorized publication in the Federal Register of a notice of proposed 
rulemaking that presented two

[[Page 45094]]

alternatives for phasing out the TAG program (the ``Proposed 
Rule'').\8\
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    \8\ 74 FR 31217 (June 30, 2009).
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    The first alternative described in the Proposed Rule, designated 
Alternative A, would preserve the original termination date for the TAG 
program. For those IDIs that had not opted out of the TAG program, 
under this option, the FDIC's guarantee of noninterest-bearing 
transaction accounts would expire on December 31, 2009.
    The second alternative, designated Alternative B, proposed the 
extension of the TAG program through June 30, 2010, six months beyond 
the current expiration date of December 31, 2009. Under this option, 
IDIs are provided an opportunity to opt out of the extended TAG 
program; if an IDI that is currently participating in the program opts 
out, Alternative B provided that the FDIC's guarantee would expire as 
scheduled on December 31, 2009. To balance the income generated from 
TAG fees with potential losses associated with the TAG program during 
the extension period, the FDIC proposed to increase the assessment rate 
to an annualized rate of 25 basis points (rather than the current 10 
basis points) on the guaranteed deposits in noninterest-bearing 
transaction accounts. Under this option, the increased fee would be 
collected quarterly in the same manner provided in existing 
regulations. Finally, Alternative B recognized that some IDIs would 
have to revise their disclosures related to the TAG program. This would 
be required only if their current disclosures became inaccurate 
following extension of the TAG program. For example, under Alternative 
B, each IDI that is participating in the extension would need to revise 
its disclosures if its existing disclosures indicated that the FDIC's 
guarantee will apply only through December 31, 2009. Such an IDI would 
need to revise its disclosures to indicate that the guarantee will 
apply through June 30, 2010.

III. Comment Summary and Discussion

    The FDIC requested comment on every aspect of the Proposed Rule. In 
addition, the FDIC posed specific questions relating to proposed 
Alternative B. The FDIC received 91 comments on the proposed rule. The 
commenters included 60 insured depository institutions, 13 industry 
associations, 5 holding companies, 7 state government entities, 3 
bankers' banks, and 3 depositors. A summary of the comments, including 
a summary of the comments addressing the specific questions, follows.

A. Alternatives for Phasing Out TAG Program

    The FDIC sought information on whether commenters preferred 
Alternative A or Alternative B (or some other alternative) as the most 
appropriate means of insuring an orderly phase-out of the FDIC's TAG 
program. The FDIC received 15 comments expressly supporting Alternative 
A and 44 comments expressly supporting Alternative B. A summary of the 
comments the FDIC received in both of those categories follows.
Comments Favoring Alternative A
    The FDIC received 15 comments expressly supporting Alternative A. 
Commenters supporting Alternative A generally shared the opinion that 
financial market volatility and risk aversion have moderated since the 
FDIC implemented the TAG program in the fall of 2008. These commenters 
generally noted that recent economic and financial market improvements, 
such as greater access to debt and capital markets and increased 
depositor and consumer confidence in the banking system, have 
eliminated the need for the TAG program.
    A small number of commenters supporting Alternative A expressed 
concern that an extension of the TAG program would burden healthy 
institutions that elect to opt out. An insured depository institution 
electing to opt out of the extended TAG program would be required to 
disclose to customers that balances in its non-interest-bearing 
transaction accounts exceeding the $250,000 limit are no longer 
guaranteed under the TAG program. Several commenters expressed concern 
that such disclosures would result in a loss of depositor 
relationships. Similarly, a small number of the comments favoring 
Alternative A suggested that extending the TAG program with an opt-out 
election as proposed under Alternative B would effectively punish 
institutions electing to opt out and give an unfair competitive 
advantage to those institutions that elect to remain in the TAG program 
through the extended period. Specifically, these commenters expressed 
concern that customers would inaccurately perceive a bank's election to 
opt out of the TAG program extension as an indication that the non-
interest bearing transaction account balances exceeding $250,000 at 
that bank are at risk. To avoid customer confusion and any unfair 
competitive advantage being created by an extension of the TAG program, 
these commenters recommended that the FDIC allow the TAG program to 
phase out under Alternative A.
Comments Favoring Alternative B
    The FDIC received 44 comments expressly supporting Alternative B as 
the more appropriate method of phasing out the TAG program. Commenters 
that supported Alternative B generally expressed a belief that, despite 
vast improvement since the fall of 2008, the economy has not yet 
stabilized to the point that depositors would be comfortable having 
large uninsured or non-guaranteed transaction balances on deposit with 
smaller insured depository institutions or community banks. A number of 
comments the FDIC received from community banks and state and national 
banking industry associations expressed concerns that regions of the 
country most affected by the recent financial and economic turmoil 
would not see an improvement in depositor confidence within the phase-
out time period proposed in Alternative A. These commenters also 
emphasized that an extension of the TAG program is important to the 
country's continuing economic recovery.
    The FDIC also received several comments expressing concern that 
expiration of the TAG program under Alternative A would result in a 
significant shift in large business deposits and public deposits away 
from community banks. Given the current economic environment, 
depositors with large balances in non-interest bearing transaction 
accounts could be motivated to move their deposits away from smaller 
insured depository institutions for the perceived security of a larger 
``too big to fail'' insured depository institution if the TAG program 
were to expire. A depletion of large noninterest-bearing transaction 
account balances would significantly harm community banks and smaller 
insured depository institutions by putting them at risk of becoming 
troubled, especially in those regions of the country still recovering 
economically.
    In addition, the FDIC received several comments concerning the 
effect that recent media coverage has had on the public's perception of 
the banking industry. As one community bank noted, news stories 
covering the current problems with commercial real estate and bank 
failures have caused the business community and many depositors to be 
very concerned about the safety of their money. The commenter 
recommended adopting Alternative B as an appropriate phase out for the 
TAG program because it would counter such negative media

[[Page 45095]]

coverage and would help alleviate the concerns of large businesses and 
public entities about the safety of their non-interest bearing 
transaction accounts that exceed $250,000.
    For several reasons the FDIC believes that the better alternative 
is to extend the TAG program beyond December 31, 2009. The FDIC, like 
some commenters, has observed that significant improvement in the 
financial markets has been made since last fall. However, the FDIC 
believes that there are still significant portions of the banking 
industry, particularly in regions still suffering the most from recent 
economic turmoil, that will benefit of the TAG program beyond the end 
of this year. Progress toward a stable, fully-functioning financial 
marketplace has been made, and the FDIC believes that the TAG program, 
as well as the DGP, was instrumental in achieving these improvements. 
However, terminating the TAG program too quickly could significantly 
impair or erase that progress. Moreover, all currently participating 
entities can choose whether they will participate in the extension of 
the TAG program. The FDIC believes that any competitive disadvantage 
that may be incurred by choosing not to participate is outweighed by 
the help the program provides in stabilizing the financial markets and 
restoring public confidence in the economy and the banking industry.

B. Specific Questions Presented in the NPR

    In addition to requesting information on whether commenters 
preferred Alternative A or Alternative B as the most appropriate means 
of ensuring an orderly phase out of the FDIC's TAG program, the FDIC 
also posed specific questions relating to proposed Alternative B. The 
specific questions, as well as a summary and discussion of the comments 
the FDIC received addressing each question, follows.
Question 1: If the TAG program is extended, is six months an 
appropriate time for the extension? If not, what would be considered an 
appropriate extension period for the TAG program?
    The FDIC received 72 comments supporting an extension of the TAG 
program for at least six months. Commenters supporting a six-month 
extension of the TAG program generally indicated that a six-month 
period presented an appropriate timetable for phasing out the TAG 
program. One industry association noted that certain risk spreads have 
returned to pre-crisis levels, suggesting that the worst of the market 
turmoil has passed. However, that commenter also noted that some areas 
of the country continue to be affected by high unemployment rates, a 
decline in business activity, and increases in bank credit 
delinquencies and losses. The commenter supported a six-month extension 
as appropriate given the lingering financial threats in many local 
markets.
    The FDIC also received 45 comments (including some of the comments 
that also expressly favored Alternative B) that recommended extending 
the TAG program for one-year (through December 31, 2010). A number of 
community banks cited various forecasts predicting that the U.S. 
economy will continue to face significant financial and economic 
pressures through 2009. Several of the comments noted that the TAG 
program has helped preserve the franchise values of banking 
institutions both through customer retention and reduction of the 
likelihood of bank deposit runs. A number of community banks also 
commented that the proposed six-month extension would be too short a 
time period to be of value for many insured depository institutions 
given the proposed 25 basis point fee.
    Additionally, several commenters recommended extending the TAG 
program through the year 2013. Generally, these commenters advocated 
extending the TAG program to December 31, 2013 because it would match 
the TAG program's non-interest bearing transaction account guarantee 
time period with the time period established for the FDIC's $250,000 
deposit insurance limit for individual accounts.
    The FDIC does not disagree with projections that the economy will 
continue to face pressures through the remainder of this year. In fact, 
that premise is one of the bases for the decision to extend the TAG 
program. However, the FDIC does not agree that the TAG program should 
be extended for one year or longer. The TAG program, like the DGP, was 
always intended to be temporary. The FDIC believes that a six-month 
extension of the TAG program will provide the optimum balance between 
continuing to provide support to those institutions most affected by 
the recent financial and economic turmoil and phasing out the program 
in an orderly manner.
Question 2: In order to balance the income generated from TAG 
fees with potential losses associated with the TAG program during the 
extension period, the FDIC has proposed to charge an annualized rate of 
25 basis points (rather than the current 10 basis points) on deposits 
in non-interest-bearing transaction accounts. Is this increase in fees 
appropriate? If not, what fee should be charged by the FDIC to cover 
potential losses caused by an extension of the TAG program?
    A large number of commenters addressed the issue of whether a 
participation fee of 25 basis points on deposits in non-interest-
bearing transaction accounts is appropriate for the proposed TAG 
program extension under Alternative B. While a few commenters were in 
favor of the proposed 25 basis point fee, a majority of the comments 
favored a fee less than 25 basis points.
    The FDIC received 20 comments supporting the extension of the 
current fee structure (10 basis points) to cover the six-month 
extension of the TAG program as proposed in Alternative B. Some of 
these commenters raised concerns that a 25 basis-point fee for a six-
month extension period is too high. One community bank expressed the 
belief that increasing the fees charged for the TAG program would 
decrease profitability and capital levels of FDIC member banks at a 
time when all banks are struggling to improve profitability. One 
commenter noted that while the assessment needs to be priced fairly, it 
is also important not to make the fee so expensive that some financial 
institutions cannot participate. One community bank commented that 
maintaining the 10 basis-point fee would encourage greater 
participation from healthier banks and could potentially generate 
greater revenue if collected during a time of a strengthening economy.
    The FDIC also received 16 comments supporting a participation fee 
between 10 basis points and 25 basis points. These commenters generally 
shared the concerns of those who supported extending the current 10 
basis-point fee, that is, they felt that a fee of 25 basis points is 
too high. However, commenters supporting a fee between 10 basis points 
and 25 basis points also recognized the increased costs the TAG program 
poses to the FDIC. Several of these commenters noted that the fee 
associated with the extension of the TAG program should be based on the 
costs of the program for the FDIC. A majority of these comments 
recommended that an appropriate

[[Page 45096]]

participation fee for the TAG program extension would fall within the 
range of 15 to 20 basis points based on the costs of the TAG program to 
the FDIC. A small number of comments from insured depository 
institutions stated that they would still participate in the TAG 
extension program if the participation fee were increased to 25 basis 
points.
    The FDIC received 23 comments recommending that the FDIC adopt a 
risk-based approach to establish the participation fee for the TAG 
program extension. Specifically, these commenters suggested 
establishing fees that are commensurate with the risk profile of the 
participating bank as determined under the FDIC's risk-based assessment 
system for deposit insurance. One community bank commented that 
implementing a risk-based approach would encourage broader 
participation in the TAG program extension by the vast majority of 
banks that fall within Risk Category I and II, but more fully assess 
the cost per deposit at banks placed in higher Risk Categories. A 
second community bank commented that a risk-based approach to assessing 
the fee for participation in the TAG program extension would ensure 
that the banks that pose the most risk to the fund would pay the most 
for participation in the TAG program extension.
    The cost of providing guarantees for noninterest-bearing 
transaction accounts at failed IDIs since the inception of the TAG 
program already has exceeded projected total TAG program revenue 
through the end of December 2009. Further, the FDIC projects additional 
failures of IDIs through the end of the year that will result in 
overall TAG losses that are expected to considerably exceed revenues. 
(Revenues generated from fees associated with the DGP are expected to 
cover TAG losses as well as losses incurred by the FDIC under the DGP.) 
In an effort to balance the income generated from TAG fees with 
potential losses associated with the TAG program during the extension 
period, the FDIC believes that the base fee for the guarantee should be 
increased.
    The FDIC finds merit in the proposals that a risk-based system be 
implemented. Switching to a risk-based fee system will allow the FDIC 
to align the fees charged under the TAG program to the risks posed by 
the institutions that participate in the program. Those institutions 
that pose greater risk will be charged higher fees to reflect that risk 
and will thus bear more fully the cost from the extension of the 
program. Additionally, the higher overall fees will better cover the 
potential costs of the program.
    Given the short duration of the TAG extension and the limited 
timeframe for implementing a risk-based fee system, the FDIC will rely 
on the general framework it has in place for the quarterly, risk-based 
premium system. Participants in the extended program will be charged a 
fee based on the risk category to which they are assigned for purposes 
of the risk-based premium system. The minimum annualized fee will be 15 
basis points (rather than the current 10 basis points) on deposits in 
noninterest-bearing transaction accounts.
Question 3: Should the FDIC reduce the maximum interest rate 
for NOW accounts that qualify for the FDIC's guarantee under the TAG 
program? Would placing an interest rate limit on NOW accounts of no 
higher than 0.25 percent be appropriate? If not, what would be 
considered an appropriate rate limitation for NOW accounts?
    The FDIC received 28 comments addressing the question of whether to 
reduce the maximum interest rate for NOW accounts that qualify for the 
TAG program during the proposed extension period under Alterative B. 
The FDIC received 12 comments expressly supporting a reduction of the 
maximum interest rate and 16 comments opposing a reduction.
    One community bank that favored a reduction in the maximum interest 
rate for NOW accounts stated that dropping the maximum interest rate to 
a range of 35 to 40 basis points would more closely match current 
market alternatives. However, the commenter also raised concerns that a 
reduction of the interest rate ceiling to 25 basis points might 
encourage larger institutions to grab market share by pricing at higher 
levels with the implied security of government backing. On the other 
hand, another community bank expressed the opinion that reducing the 
interest rate ceiling on qualifying NOW accounts under the extended TAG 
program to 25 basis points would have no effect on the bank's 
customers. Similarly, a different community bank argued that a 
reduction in the maximum interest rate for NOW accounts is reasonable 
given that most money market rates have moved lower since the TAG 
program was introduced in the fall of 2008. However, this commenter 
also pointed out that NOW account customers are concerned with safety 
of principal and immediate funds availability rather than the maximum 
interest rate of the account.
    In opposition to a reduction in the maximum interest rate limit for 
NOW accounts, the FDIC received several comments that expressed concern 
that a reduction in the maximum interest rate would confuse customers 
about the guarantees available under the TAG program extension.
    A number of other commenters pointed out that a reduction in the 
maximum interest limit for NOW accounts would require participating 
banks in the TAG program extension to make costly disclosures to 
existing customers. Similarly, one national banking industry 
association commented that the potential disruption to NOW account 
customers and the cost of adjusting bank systems and customer 
agreements argues against altering the maximum interest rate 
limitation. A second national banking industry association supported 
not changing the maximum interest rate on NOW accounts because many 
institutions do not consider the interest rates on NOW accounts to be 
as sensitive as other deposit rates, and NOW account rates do not vary 
as the market fluctuates. The cost and confusion that could potentially 
accompany such a reduction would be disruptive for both participating 
banks and NOW account customers.
    The FDIC agrees with many of the concerns raised by commenters who 
support no change to the maximum permissible interest rate for 
qualifying NOW accounts. The FDIC believes that there would be a 
potential for customer confusion about the availability of the 
guarantee if the maximum interest rate is changed for the remainder of 
the program. Each participating institution would also have to revise 
or adjust its banking systems, customer agreements, and disclosures to 
reflect the change. The burden of making these changes, the potential 
for customer confusion, and the relatively short period of time of the 
extension (i.e., six months) argue against making such a change. 
Therefore, the FDIC has decided not to change the maximum interest rate 
limit for NOW accounts. The term ``noninterest-bearing transaction 
account'' will continue to include only those NOW accounts with 
interest rates that are no higher than 0.50 per cent as further 
described in 12 CFR 370.2(h).

IV. The Final Rule

    In general, the final rule amends various provisions in 12 CFR Part 
370 to (1) Extend for six months the expiration date of the TAG 
program, (2) increase the assessment fee that applies during that six 
month period from 10 basis points to either 15 basis points, 20

[[Page 45097]]

basis points, or 25 basis points depending on the entity's Risk 
Category, (3) provide an opportunity for currently participating 
entities to opt out of the TAG program effective on January 1, 2010, 
and (4) provide a sample disclosure statement for those entities that 
elect to opt out.

Six-Month Extension

    The final rule extends the TAG program for six months; the TAG 
program will now expire on June 30, 2010. However, each participating 
entity will have an opportunity to opt out of the extension. While 
there is evidence that confidence in the banking system and the economy 
in general is improving, some additional time is needed in order to 
provide an orderly phase-out of the program.

Increased Assessment

    The final rule imposes an increased assessment and a risk-based fee 
system on those entities participating in the extension of the TAG 
program. Beginning on January 1, 2010, a participating entity that does 
not opt out of the transaction account guarantee program in accordance 
with Sec.  370.5(c)(2) shall pay quarterly an annualized fee in 
accordance with its respective Risk Category rating. All institutions 
that are assigned to Risk Category I of the risk-based premium system 
will be charged an annualized fee of 15 basis points on their deposits 
in noninterest-bearing transactions accounts for the portion of the 
quarter in which they are assigned to Risk Category I. Likewise, 
institutions in Risk Category II will be charged an annualized fee of 
20 basis points, and institutions in either Risk Category III or Risk 
Category IV will be charged an annualized fee of 25 basis points for 
those portions of the quarter in which they are assigned to the various 
risk categories. The fee will continue to be collected quarterly in the 
same manner as provided for in existing regulations.
    The fee will apply only to deposit amounts that exceed the existing 
deposit insurance limit of $250,000, as reported on the quarterly Call 
Report in any noninterest-bearing transaction accounts (as defined in 
Sec.  370.2(h)), including any such amounts swept from a noninterest 
bearing transaction account into an noninterest bearing savings deposit 
account as provided in Sec.  370.4(c).

Opt-Out

    Although the final rule extends the expiration date of the TAG 
program for six months, it also provides each participating entity the 
opportunity to opt out of the program effective on January 1, 2010. The 
option to opt out is a one-time option, and any decision to opt out is 
irrevocable. In order to exercise the option to opt out, a 
participating entity must submit an e-mail to [email protected] no later 
than November 2, 2009 that meets all of the requirements of 12 CFR 
370.5(g)(2). The opt-out provision allows each participating entity the 
opportunity to decide whether participation in the extension of the TAG 
program is desirable based upon on each entity's condition and business 
plan. In order to ensure that an institution's depositors and the 
public are aware of an entity's decision to opt out of the extension, 
the final rule also includes a sample disclosure statement for 
currently participating institutions that opt out of the extension.

IV. Regulatory Analysis and Procedure

A. Regulatory Flexibility Act

    Under the Regulatory Flexibility Act (RFA), the FDIC must prepare a 
final regulatory flexibility analysis in connection with the 
promulgation of a final rule,\9\ or certify that the final rule will 
not have a significant economic impact on a substantial number of small 
entities.\10\ For purposes of the RFA analysis or certification, a 
``small entity'' is any financial institution with total assets of $175 
million or less. For the reasons discussed below, the FDIC certifies 
that the final rule will not have a significant economic impact on a 
substantial number of small entities.
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    \9\ 5 U.S.C. 604.
    \10\ 5 U.S.C. 605(b).
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    Currently 7,063 IDIs participate in the TAG program, of which 
approximately 3,688, or 52.2 percent are small entities. Within the 
universe of small institutions, 1,011, or 27.4 percent did not have TAG 
eligible deposits as of the June 2009 Report of Condition and Income 
for banks and the Thrift Financial Report for thrifts (collectively, 
``June 2009 Call Reports''); thus, they were not required to pay the 10 
basis point fee currently assessed for participation in the TAG 
program. Assuming these IDIs do not change circumstances and do not opt 
out, there would be no impact on this group as a result of the fee 
increase. As to the remaining 2,677 small entities that had TAG 
eligible deposits as of the June 2009 Call Reports, they have the 
opportunity to opt out of the extended TAG program. However, assuming 
these 2,677 small entities remain in the TAG program, the fee increase 
could have some impact on a substantial number of the remaining 
participants in the TAG program during the extension period.
    Nevertheless, the FDIC has determined that, the economic impact of 
the Rule on small entities will not be significant for the following 
reasons. With respect to the fee increase from 10 basis points to 15, 
20 or 25 basis points depending upon the institution's risk rating, 
based on figures from the June 2009 Call Reports, the average fee 
increase for IDIs participating in the extended TAG program would be 
$681 for the 6 month extension period, representing 8.2 percent of the 
average net operating income before taxes for the six months through 
June 2009. Moreover, the FDIC asserts that the economic benefit of the 
six-month extension would outweigh the increased fee associated with 
participation in that the small entities would benefit from the 
extended time period within which to phase out the TAG program as 
financial markets continue to stabilize.
    With respect to amending the disclosures related to the TAG 
program, the FDIC asserts that the economic impact on all small 
entities participating in the program (regardless of whether they pay a 
fee) would be de minimis in nature and would be outweighed by the 
economic benefit of the six-month extension.
    Accordingly, the Rule would not have a significant economic impact 
on a substantial number of small entities.

B. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501 et seq.), an agency may not conduct or sponsor and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid OMB control number. This Final Rule implements 
Alternative B of the Notice of Proposed Rulemaking, which extends the 
TAG program through June 30, 2010. Alternative B included disclosure 
and reporting requirements which are retained in the Final Rule. 
Specifically, section 370.5(c)(2) allows IDIs participating in the TAG 
program on October 31, 2009, to opt out of the program effective 
January 1, 2010. In addition, section 370.5(g)(2)(vi) requires 
institutions that opt out of the TAG program to disclose to customers 
that funds in excess of the standard maximum deposit insurance amount 
will no longer be guaranteed under the TAG program after December 31, 
2009. Finally, pursuant to section 370.5(h)(5)(i), institutions 
participating in the TAG program extension would be required to update 
any existing disclosures regarding participation in

[[Page 45098]]

the program to reflect the extension of coverage through June 30, 2010.
    In the Notice of Proposed Rulemaking, the FDIC expressed an 
intention to amend its existing TLGP-related information collection 
(OMB No. 3064-0166) to incorporate the burden associated with the TAG 
program extension. However, a request for normal clearance of the TLGP 
information collection, which was initially approved under emergency 
clearance procedures, was pending before OMB at the time of publication 
of the Notice of Proposed Rulemaking. To avoid concurrent requests on 
the same information collection, the FDIC instead, on July 1, 2009, 
submitted to OMB a request for clearance of the reporting and 
disclosure requirements in Alternative B as a separate, new information 
collection. That request is still pending.
    The proposed rule document for the TAG program extension requested 
comment on the estimated paperwork burden. Although, as previously 
discussed, a number of comments were received on substantive aspects of 
the proposal, none of the comments addressed the estimated paperwork 
burden. Therefore, the FDIC has not altered its initial burden 
estimates. The estimated burden for the reporting and disclosure 
requirements, as set forth in the Notice of Proposed Rulemaking and the 
Final Rule, is as follows:
    Title: Temporary Liquidity Guarantee Program.
    OMB Number: 3064-0166.
    Affected public: Insured depository institutions.
    Estimated Number of Respondents:
    Opt out of TAG program/Disclosure to customers of discontinuation 
or TAG program guarantee--3,555.
    Disclosure to customers of TAG program extension--3,554.
    Frequency of Response:
    Opt out of TAG program/Disclosure to customers of discontinuation 
of TAG program guarantee--once.
    Disclosure to customers of TAG program extension--once.
    Average time per response:
    Opt out of TAG program/Disclosure to customers of discontinuation 
of TAG program guarantee--1 hour.
    Disclosure to customers of TAG program extension--1 hour.
    Estimated Annual Burden:
    Opt out of TAG program/Disclosure to customers of discontinuation 
of TAG program guarantee--3,555 hours.
    Disclosure to customers of TAG program extension--3,554 hours.
    Total annual burden--7,109 hours.
    Comment Request: The FDIC has an ongoing interest in public 
comments on its collections of information, including comments on: (1) 
Whether this collection of information is necessary for the proper 
performance of the FDIC's functions, including whether the information 
has practical utility; (2) the accuracy of the estimates of the burden 
of the information collection, including the validity of the 
methodologies and assumptions used; (3) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (4) ways 
to minimize the burden of the information collection on respondents, 
including through the use of automated collection techniques or other 
forms of information technology. Comments may be submitted to the FDIC 
by any of the following methods: By mail to the Executive Secretary, 
Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429; by FAX at (202) 898-8788; or by e-mail to 
[email protected]. All comments should refer to ``Transaction Account 
Guarantee Program Extension.'' Copies of comments may also be submitted 
to the OMB Desk Officer for the FDIC, Office of Information and 
Regulatory Affairs, Office of Management and Budget, New Executive 
Office Building, Room 10235, Washington, DC 20503.

C. Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113 
Stat. 1338, 1471 (Nov. 12, 1999), requires the federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. In issuing the proposed rule, the FDIC solicited 
comments on how to make the proposed regulation easier to understand. 
No comments addressing that issue were received.

D. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the Rule will not affect family well-
being within the meaning of section 654 of the Treasury and General 
Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

E. Small Business Regulatory Enforcement and Fairness Act

    The Office of Management and Budget (OMB) has determined that this 
Final Rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement and Fairness Act 
of 1996 (SBREFA), 5 U.S.C. 801 et seq. As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the Government 
Accountability Office so that the Rule may be reviewed.

List of Subjects in 12 CFR Part 370

    Banks, Banking, Bank deposit insurance, Holding companies, National 
banks, Reporting and recordkeeping requirements, Savings associations.

0
For the reasons discussed in the preamble, the Federal Deposit 
Insurance Corporation amends 12 CFR part 370 as follows:

PART 370--TEMPORARY LIQUIDITY GUARANTEE PROGRAM

0
1. The authority citation for part 370 continues to read as follows:

    Authority:  12 U.S.C. 1813(l), 1813(m), 1817(i), 1818, 
1819(a)(Tenth), 1820(f), 1821(a), 1821(c), 1821(d), 1823(c)(4).

0
2. Amend Sec.  370.2 as follows:
0
a. Revise paragraph (g); and
0
b. Revise paragraph (h)(4); to read as follows:

Sec.  370.2  Definitions.

* * * * *
    (g) Participating entity. The term ``participating entity'' means 
with respect to each of the debt guarantee program and the transaction 
account guarantee program,
    (1) An eligible entity that became an eligible entity on or before 
December 5, 2008 and that has not opted out, or
    (2) An entity that becomes an eligible entity after December 5, 
2008, and that the FDIC has allowed to participate in the program, 
except that a participating entity that opts out of the transaction 
account guarantee program in accordance with Sec.  370.5(c)(2) ceases 
to be a participating entity in the transaction account guarantee 
program effective on January 1, 2010.
    (h) * * *
    (4) Notwithstanding paragraph (h)(3) of this section, a NOW account 
with an interest rate above 0.50 percent as of November 21, 2008, may 
be treated as a noninterest-bearing transaction account for purposes of 
this part, if the insured depository institution at which the account 
is held reduces the interest rate on that account to 0.50 percent or 
lower before January 1, 2009, and commits to maintain that interest 
rate at no more than 0.50 percent at all times during the period in 
which the institution is participating in the transaction account 
guarantee program.
* * * * *
0
3. Amend section 370.4 by revising paragraph (a) to read as follows:

[[Page 45099]]

Sec.  370.4  Transaction Account Guarantee Program.

    (a) In addition to the coverage afforded to depositors under 12 CFR 
Part 330, a depositor's funds in a noninterest-bearing transaction 
account maintained at a participating entity that is an insured 
depository institution are guaranteed in full (irrespective of the 
standard maximum deposit insurance amount defined in 12 CFR 330.1(n)) 
from October 14, 2008 through:
    (1) The date of opt-out, in the case of an entity that opted out 
prior to December 5, 2008;
    (2) December 31, 2009, in the case of an entity that opts out 
effective on January 1, 2010; or
    (3) June 30, 2010, in the case of an entity that does not opt out.
* * * * *

0
4. Amend section 370.5 as follows:
0
a. Revise paragraph (c);
0
b. Revise paragraph (g); and
0
c. Revise paragraph (h)(5), to read as follows:

Sec.  370.5  Participation.

* * * * *
    (c) Opt-out and opt-in options.
    (1) From October 14, 2008 through December 5, 2008, each eligible 
entity is a participating entity in both the debt guarantee program and 
the transaction account guarantee program, unless the entity opts out. 
No later than 11:59 p.m., Eastern Standard Time, December 5, 2008, each 
eligible entity must inform the FDIC if it desires to opt out of the 
debt guarantee program or the transaction account guarantee program, or 
both. Failure to opt out by 11:59 p.m., Eastern Standard Time, December 
5, 2008 constitutes a decision to continue in the program after that 
date. Prior to December 5, 2008 an eligible entity may opt in to either 
or both programs by informing the FDIC that it will not opt out of 
either or both programs.
    (2) Any insured depository institution that is participating in the 
transaction account guarantee program may elect to opt out of such 
program effective on January 1, 2010. Any such election to opt-out must 
be made in accordance with the procedures set forth in paragraph (g)(2) 
of this section. An election to opt out once made is irrevocable.
* * * * *
    (g) Procedures for opting out.
    (1) Except as provided in paragraph (g)(2) of this section, the 
FDIC will provide procedures for opting out and for making an 
affirmative decision to opt in using FDIC's secure e-business website, 
FDICconnect. Entities that are not insured depository institutions will 
select and solely use an affiliated insured depository institution to 
submit their opt-out election or their affirmative decision to opt in.
    (2) Pursuant to paragraph (c)(2) of this section a participating 
entity may opt out of the transaction account guarantee program 
effective on January 1, 2010 by submitting to the FDIC on or before 
11:59 p.m., Eastern Standard Time, on November 2, 2009 an email 
conveying the entity's election to opt out. The subject line of the 
email must include: ``TLGP Election to Opt Out--Cert. No. --------.'' 
The email must be addressed to [email protected] and must include the 
following:
    (i) Institution Name;
    (ii) FDIC Certificate number;
    (iii) City, State, ZIP;
    (iv) Name, Telephone Number and Email Address of a Contact Person;
    (v) A statement that the institution is opting out of the 
transaction account guarantee program effective January 1, 2010; and
    (vi) Confirmation that no later than November 16, 2009 the 
institution will post a prominent notice in the lobby of its main 
office and each domestic branch and, if it offers Internet deposit 
services, on its website clearly indicating that after December 31, 
2009, funds held in noninterest-bearing transaction accounts will no 
longer be guaranteed in full under the Transaction Account Guarantee 
Program, but will be insured up to $250,000 under the FDIC's general 
deposit insurance rules.
    (h) * * *
    (5) Each insured depository institution that offers noninterest-
bearing transaction accounts must post a prominent notice in the lobby 
of its main office, each domestic branch and, if it offers Internet 
deposit services, on its website clearly indicating whether the 
institution is participating in the transaction account guarantee 
program. If the institution is participating in the transaction account 
guarantee program, the notice must state that funds held in 
noninterest-bearing transactions accounts at the entity are guaranteed 
in full by the FDIC.
    (i) These disclosures must be provided in simple, readily 
understandable text. Sample disclosures are as follows:

For Participating Institutions

    [Institution Name] is participating in the FDIC's Transaction 
Account Guarantee Program. Under that program, through June 30, 2010, 
all noninterest-bearing transaction accounts are fully guaranteed by 
the FDIC for the entire amount in the account. Coverage under the 
Transaction Account Guarantee Program is in addition to and separate 
from the coverage available under the FDIC's general deposit insurance 
rules.

For Participating Institutions That Elect To Opt Out of the Extended 
Transaction Account Guaranty Program Effective on January 1, 2010

    Beginning January 1, 2010 [Institution Name] will no longer 
participate in the FDIC's Transaction Account Guarantee Program. Thus, 
after December 31, 2009, funds held in noninterest-bearing transaction 
accounts will no longer be guaranteed in full under the Transaction 
Account Guarantee Program, but will be insured up to $250,000 under the 
FDIC's general deposit insurance rules.

For Non-Participating Institutions

    [Institution Name] has chosen not to participate in the FDIC's 
Transaction Account Guarantee Program. Customers of [Institution Name] 
with noninterest-bearing transaction accounts will continue to be 
insured for up to $250,000 under the FDIC's general deposit insurance 
rules.
    (ii) If the institution uses sweep arrangements or takes other 
actions that result in funds being transferred or reclassified to an 
account that is not guaranteed under the transaction account guarantee 
program, for example, an interest-bearing account, the institution must 
disclose those actions to the affected customers and clearly advise 
them, in writing, that such actions will void the FDIC's guarantee with 
respect to the swept, transferred, or reclassified funds.
* * * * *

0
5. Amend section 370.7 by revising paragraph (c) to read as follows:

Sec.  370.7  Assessments for the Transaction Account Guarantee Program.

* * * * *
    (c) Amount of assessment.
    (1) Except as provided in paragraph (c)(2) of this section any 
eligible entity that does not opt out of the transaction account 
guarantee program shall pay quarterly an annualized 10 basis point 
assessment on any deposit amounts exceeding the existing deposit 
insurance limit of $250,000, as reported on its quarterly Consolidated 
Reports of Condition and Income, Thrift Financial Report, or Report of 
Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks 
(each, a ``Call Report'') in any noninterest-bearing transaction 
accounts (as defined in Sec.  370.2(h)), including any such amounts 
swept from a noninterest bearing transaction account into a noninterest

[[Page 45100]]

bearing savings deposit account as provided in Sec.  370.4(c).
    (2) Beginning on January 1, 2010, each participating entity that 
does not opt out of the transaction account guarantee program in 
accordance with Sec.  370.5(c)(2) shall pay quarterly a fee based upon 
its Risk Category rating. An entity's Risk Category is determined in 
accordance with the FDIC's risk-based premium system described in 12 
CFR Part 327. The amount of the fee for each such entity is equal to 
the annualized, TAG assessment rate for the entity multiplied by the 
amount of the deposits held in noninterest-bearing transaction accounts 
(as defined in Sec.  370.2(h) and including any amounts swept from a 
noninterest bearing transaction account into an noninterest bearing 
savings deposit account as provided in Sec.  370.4(c)) that exceed the 
existing deposit insurance limit of $250,000, as reported on the 
entity's most recent quarterly Call Report. The annualized TAG 
assessment rates are as follows:
    (i) 15 basis points, for the portion of each quarter in which the 
entity is assigned to Risk Category I;
    (ii) 20 basis points, for the portion of each quarter in which the 
entity is assigned to Risk Category II; and
    (iii) 25 basis points, for the portion of each quarter in which the 
entity is assigned to either Risk Category III or Risk Category IV.
    (3) The assessments provided in this paragraph (c) shall be in 
addition to an institution's risk-based assessment imposed under Part 
327.
* * * * *

    By order of the Board of Directors.

    Dated at Washington, DC, this 26th day of August 2009.

Federal Deposit Insurance Corporation.

Robert E. Feldman,
Executive Secretary.
[FR Doc. E9-21034 Filed 8-31-09; 8:45 am]
BILLING CODE 6714-01-P
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