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[Federal Register Volume 74, Number 107 (Friday, June 5, 2009)]
[Rules and Regulations]
[Pages 26941-26945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13083]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 370

RIN 3064-AD37

Modification of Temporary Liquidity Guarantee Program

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is issuing this Final Rule to make permanent a minor 
modification to the Temporary Liquidity Guarantee Program (TLGP) to 
include certain issuances of mandatory convertible debt (MCD) under the 
TLGP debt guarantee program (DGP).

DATES: The final rule becomes effective on June 5, 2009.

FOR FURTHER INFORMATION CONTACT: Steven Burton, Senior Financial 
Analyst, Bank and Regulatory Policy Section, Division of Insurance and 
Research, (202) 898-3539 or [email protected]; Robert C. Fick, Counsel, 
Legal Division, (202) 898-8962 or [email protected]; A. Ann Johnson, 
Counsel, Legal Division (202) 898-3573 or [email protected]; Mark L. 
Handzlik, Senior Attorney, Legal Division, (202) 898-3990 or 
[email protected]; Gail Patelunas, Deputy Director, Division of 
Resolutions

[[Page 26942]]

and Receiverships, (202) 898-6779 or [email protected]; (for 
questions or comments related to MCD applications): Lisa D Arquette, 
Associate Director, Division of Supervision and Consumer Protection, 
(202) 898-8633 or [email protected]; or Donna Saulnier, Manager, 
Assessment Policy Section, Division of Finance, (703) 562-6167 or 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On October 23, 2008 the FDIC's Board of Directors (Board) adopted 
the TLGP as part of a coordinated effort by the FDIC, the U.S. 
Department of the Treasury (Treasury), and the Board of Governors of 
the Federal Reserve System (Federal Reserve) to address unprecedented 
disruptions in credit markets and the resultant effects on the ability 
of financial institutions to fund themselves and make loans to 
creditworthy borrowers. The TLGP and other government programs have had 
favorable effects thus far; however the FDIC continues to evaluate ways 
to make the TLGP more effective.
    On February 27, 2009 the Board adopted an Interim Rule that 
modified the then-existing DGP by extending the FDIC guarantee to 
certain new issues of MCD.\1\ The purpose of the Interim Rule was to 
provide a mechanism for entities participating in the DGP to obtain 
funding from investors that may have a longer-term investment horizon. 
By providing a guarantee for senior unsecured debt that converts into 
common shares of the issuer, the FDIC expects the Interim Rule to 
moderate the potential funding needs that could result from 
concentrations of FDIC-guaranteed debt maturing in mid-2012.\2\ The 
FDIC solicited public comment on all aspects of the Interim Rule for a 
15-day comment period.
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    \1\ 74 FR 9522 (March 4, 2009).
    \2\ This modification of the TLGP is supported by the rationale 
for establishing the existing TLGP and is consistent with the 
determination of systemic risk made on October 14, 2008, pursuant to 
12 U.S.C. section 1823(c)(4)(G), by the Secretary of the Treasury 
(after consultation with the President) following receipt of the 
written recommendation dated October 13, 2008, of the FDIC's Board 
of Directors (Board) and the similar written recommendation of the 
Federal Reserve.
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    On March 17, 2009, the Board adopted an interim rule entitled 
Amendment Of The Temporary Liquidity Guarantee Program To Extend The 
Debt Guarantee Program And To Impose Surcharges On Assessments For 
Certain Debt Issued On Or After April 1, 2009 \3\ (Extension Interim 
Rule), which further amended the DGP by, among other things, extending 
the duration of the DGP for certain participating entities, imposing 
surcharges on the issuance of certain FDIC-guaranteed debt, and 
providing for the issuance of non-guaranteed debt prior to the 
expiration of the DGP. On May 19, 2009 the Board adopted the Extension 
Interim Rule as a final rule without change. That final rule (Extension 
Final Rule) is being published simultaneously today elsewhere in the 
Federal Register.
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    \3\ 74 FR 12078 (March 23, 2009).
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II. The Interim Rule

    The Interim Rule amended section 370.2(e)(5) to permit entities 
participating in the DGP to issue certain MCD upon application to and 
approval from the FDIC. The Interim Rule did not affect an entity's 
existing debt guarantee limit.
    As provided in section 370.2(e) of the Interim Rule, FDIC-
guaranteed MCD must be newly issued on or after February 27, 2009 and 
provide, in the debt instrument, for the mandatory conversion of the 
debt into common shares of the issuing entity on a specified date 
(unless the issuing entity fails to timely make any payment required 
under the debt instrument, or merges or consolidates with any other 
entity and is not the surviving or resulting entity). The Interim Rule 
also required an entity issuing MCD to provide certain disclosures to 
investors.
    As indicated in the Interim Rule, a participating entity must file 
a written application with the FDIC and its appropriate Federal banking 
agency, and obtain the FDIC's prior written approval, before issuing 
MCD. Like other applications required for purposes of the DGP, an 
entity seeking to issue MCD must include the details of the request, a 
summary of the applicant's strategic operating plan, and a description 
of the proposed use of the debt proceeds. The application also must 
provide the proposed date of issuance, the amount of MCD to be issued, 
the mandatory conversion date, and the conversion rate (as described in 
Section 370.3(h)). Where the issuance of MCD could potentially raise 
control issues, the applicant must provide written confirmation that 
all applications and all notices required under the Bank Holding 
Company Act of 1956 (as amended), the Home Owners' Loan Act (as 
amended), or the Change in Bank Control Act (as amended) have been 
submitted to the appropriate Federal banking agency prior to issuing 
MCD.
    Assessments for FDIC-guaranteed MCD are based on the time period 
from the issue date of the MCD until its mandatory conversion date.

III. Summary of Comments

    The FDIC received eight comments on the Interim Rule from banking 
organizations, trade and industry groups, and certain individuals. The 
commenters generally supported the Interim Rule in that it would 
provide participating entities the flexibility needed to attract a 
broader group of investors, including those with longer-term investment 
horizons.
    Several commenters encouraged the FDIC to revise the Interim Rule 
by making structural enhancements to MCD so that it would qualify for 
the Federal interest rate tax deduction, as provided under the Internal 
Revenue Code.\4\ For example, the commenters suggested revising the 
Rule to provide for a mandatory unit structure, where remarketed debt 
proceeds are used to fund share purchases under a separate forward-
purchase contract, and senior unsecured debt that converts to equity at 
the option of the investor. However, these structures contain certain 
features (such as the bundling of debt with a futures contract, the 
pledge of debt against the forward contract, possible contingencies 
related to debt remarketing efforts, and optionality pertaining to the 
conversion of debt to common shares of the issuer) that would make them 
ineligible for an FDIC guarantee.
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    \4\ See 26 U.S.C. 163.
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    Pursuant to the Interim Rule, the underlying debt instrument must, 
by its terms, provide for the conversion of the debt into the common 
shares of the issuing entity on a specified date. This modification of 
the DGP was intended to attract investors with longer-term investment 
horizons and reduce potential refinancing risks, and not to expand the 
definition of senior unsecured debt to include hybrid debt and equity 
securities with complex structures.
    Some commenters encouraged the FDIC to coordinate with the Federal 
Reserve to permit MCD to qualify as Tier 1 capital. MCD issued under 
the DGP is not includable in the regulatory capital of a participating 
entity until such MCD converts to the common stock of such entity. The 
FDIC does not wish to consider or pursue exceptions to the existing 
regulatory capital framework for purposes of the TLGP. Notwithstanding 
the regulatory capital treatment for MCD, however, the FDIC believes 
that FDIC-guaranteed MCD provides significant benefits to issuers and 
investors in that such debt can be expected to offer higher coupon 
rates than other senior unsecured debt issues

[[Page 26943]]

without a mandatory conversion feature. Also, for participating 
entities, the ability to issue MCD should facilitate liquidity and 
capital planning to the extent the conversion feature offsets the need 
to obtain new financing upon the expiration of the FDIC's guarantee.
    Several commenters sought clarification on the scope of the FDIC 
guarantee with respect to MCD, and urged the FDIC to confirm (i) that 
the guarantee would cover scheduled payments of principal and interest 
through maturity even in the event of a bankruptcy, conservatorship, or 
receivership, and (ii) that investors would be made whole in the event 
they do not receive equity shares on the date of conversion.
    The FDIC's obligation under the guarantee for MCD is basically the 
same as it is for any other FDIC-guaranteed debt. Generally, the FDIC 
will make scheduled payments of principal and interest pursuant to the 
terms of the debt instrument upon a ``payment default'' which is 
defined as the uncured failure of the issuing entity to make a timely 
payment of principal or interest required under the debt instrument. 
Therefore, it is irrelevant whether the payment default results from 
bankruptcy, conservatorship, receivership or some other event. The 
FDIC's guarantee protects investors when there has been a payment 
default whether or not there has been a bankruptcy, a conservatorship, 
or a receivership of the issuing entity.
    The Interim Rule states that the FDIC will make scheduled payments 
of principal and interest ``through maturity.'' Since MCD does not 
necessarily have a stated ``maturity'' date, the Final Rule makes clear 
that in the event of a payment default on MCD, the FDIC will make 
scheduled payments of principal and interest pursuant to the terms of 
the debt instrument through the mandatory conversion date.
    With regard to the comment suggesting that the FDIC clarify that 
investors would be made whole in the event they do not receive equity 
shares on the date of conversion, the FDIC believes that the Interim 
Rule adequately describes the operation of the FDIC's guarantee 
obligation in the event of a payment default. Specifically, upon a 
payment default, the FDIC will make scheduled payments of principal and 
interest pursuant to the terms of the debt instrument through the 
mandatory conversion date. Failure to deliver shares on the conversion 
date would not necessarily constitute a ``payment default.'' However, 
the FDIC anticipates that the debt instrument for MCD will require a 
payment of the unpaid principal on the conversion date in the event of 
a payment default. To the extent that the debt instrument provides that 
a principal payment is due on the conversion date in the event of a 
payment default, the FDIC would make that principal payment subject to 
the limitation that the principal payment cannot exceed the amount paid 
by holders of the MCD under the issuance. As a result, the Final Rule 
does not make any changes to the Interim Rule with respect to that 
issue.
    The following example illustrates how the Final Rule would operate 
in the event of a payment default on FDIC-guaranteed MCD after the 
bankruptcy of the issuer. Assume that a bank holding company (with the 
prior approval of the FDIC) issues MCD in which the note provides for 
monthly payments of interest for each of the seventeen months after the 
issue date. Assume also that the note provides that upon the eighteenth 
month the principal amount of the note shall convert to the common 
stock of the issuer unless there is a payment default. Finally, assume 
that in the event of a payment default the note requires that the 
issuer pay the debt holder the unpaid principal on the conversion date. 
If a petition in bankruptcy is filed against the issuer just prior to 
the twelfth month, but no payment default occurs until the fourteenth 
month, the FDIC would satisfy its guarantee obligation by making all 
payments of interest scheduled for months fourteen through seventeen. 
The FDIC also would pay to the holder of the note the unpaid principal 
amount, not to exceed the amount paid for the debt by the holder, on 
the conversion date (the eighteenth month).
    One of the commenters also asked the FDIC to protect investors 
against losses resulting from government interventions short of placing 
issuing institutions into receivership. As described by the commenter, 
an example would include a situation where a federal agency directly 
acquired, or acquired the right to receive (through warrants or other 
convertible securities) more than one-third of the common stock of an 
entity that has received approval to issue MCD. Several commenters also 
asked the FDIC to consider expanding the guarantee to cover any amount 
of the original investment (of principal) that is not recovered upon 
conversion. The FDIC does not wish to extend its guarantee to cover 
situations that do not involve payment default by the issuer. Such a 
change would protect investors against investment losses attributable 
to declines in the value of the convertible debt instrument, as opposed 
to losses related to an actual default on the underlying obligation.
    Two commenters urged the FDIC to revise the Interim Rule by 
eliminating the prior application requirement for issuing MCD, thereby 
allowing participating entities to issue MCD at their own discretion. 
As provided in the Interim Rule and under the Final Rule, the FDIC will 
review applications to issue MCD on a case-by-case basis to ensure that 
the transaction will meet the requirements of the DGP, and confirm that 
all applicable applications and notices have been submitted to the 
appropriate Federal banking agency where the transaction could present 
a change in control issue.
    Several commenters encouraged the FDIC to allow entities that issue 
MCD to use the proceeds of the issuance to replace other non-FDIC 
guaranteed debt and other regulatory capital instruments, such as 
Capital Purchase Program (CPP) obligations. The FDIC does not believe 
it is appropriate to allow participating entities to use the proceeds 
of FDIC-guaranteed debt to prepay non-FDIC guaranteed obligations 
because such prepayments would be inconsistent with one of the primary 
objectives of the DGP, which is to encourage participating entities to 
lend to creditworthy borrowers.
    One commenter urged the FDIC to revise the Interim Rule to permit 
subsidiaries of holding companies to issue MCD that, under the terms of 
the debt instrument, converts to the common stock of an affiliate. Such 
a provision would allow holding companies to effectively use the debt 
guarantee limit of an insured depository institution subsidiary for the 
holding company's own capital planning purposes. The FDIC is concerned 
that this type of funding arrangement could ultimately benefit the 
holding company at the expense of the insured depository institution 
subsidiary, where the depository institution could be forced to seek 
replacement funding once the debt converts to the common stock of the 
holding company. Accordingly, the FDIC will only approve applications 
to issue MCD that, by its terms, requires conversion of the debt into 
common stock of the issuing entity on a specified conversion date.
    Commenters also sought additional flexibility in determining the 
debt guarantee limit for bank holding companies. Specifically, the 
commenters suggested revising the Interim Rule to permit a bank holding 
company to issue senior unsecured debt up to the amount that is 
permissible for an insured depository institution subsidiary, or 
provide a separate debt

[[Page 26944]]

guarantee limit for bank holding companies based on a delineated 
percentage of liabilities or risk-weighted assets. Two other commenters 
encouraged the FDIC to modify the TLGP in a way that would permit 
eligible entities to use the TLGP for purposes of raising capital. One 
of these commenters suggested revising the definition of senior 
unsecured debt to include trust preferred securities and subordinated 
debentures.
    Under the TLGP, debt guarantee limits are based on the liquidity 
needs of an entity as determined by senior unsecured debt outstanding 
on September 30, 2008 (or 2 percent of liabilities for insured 
depository institutions without any outstanding senior unsecured debt 
on September 30, 2008). Although the Interim Rule provides an 
opportunity to attract future capital in the form of common equity, the 
purpose of the TLGP is not to recapitalize the banking industry. The 
FDIC notes that capital deficiencies are being addressed by other 
government programs and initiatives, such as the Troubled Asset Relief 
Program (TARP) and the CPP.
    Another commenter requested a second opportunity to opt-into the 
TLGP, in light of the modifications to the DGP provided under the 
Interim Rule. The FDIC notes that on March 17, 2009, the Board approved 
an Interim Rule that extends the DGP and imposes surcharges on 
assessments for certain debt issued on or after April 1, 2009 (the 
Extension Rule).\5\ One of the purposes of the DGP extension is to 
ensure an orderly phase-out of the TLGP. Providing a second opportunity 
to opt-into the DGP would be contrary to that effort. Further, the FDIC 
believes the TLGP has provided reliable and cost-efficient liquidity 
support to financial institutions with demonstrated funding needs. 
Institutions that have elected to opt-out of the TLGP are less likely 
to have such funding needs and, therefore, the FDIC believes that 
providing a second opportunity to opt-into the DGP would be of marginal 
benefit to the industry.
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    \5\ See 74 FR 12078 (March 23, 2009).
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    Finally, one commenter suggested revising the DGP to permit mutual 
banking organizations to issue MCD, on the condition that such 
organizations would convert to stock form on or before the conversion 
date. According to the commenter, this would allow mutual banks to 
raise capital now while they convert to stock form. The FDIC notes that 
mutual banking organizations must obtain regulatory approval to convert 
to a stock form of ownership, and that FDIC-guaranteed MCD is not 
recognized as regulatory capital until the debt converts into common 
equity of the issuer. In addition, the purpose of the TLGP is not to 
create incentives that would promote one form of ownership structure 
over another.
    Although the FDIC received a few other comments in connection with 
the Interim Rule, they were either unrelated to the substance of the 
Interim Rule or applicable to the Extension Rule approved by the Board 
on March 17, 2009, which provides for a limited, four-month extension 
of the DGP.\6\
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    \6\ Id.
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IV. Final Rule

    The Interim Rule generally permits entities participating in the 
DGP to issue FDIC-guaranteed MCD upon application to and approval from 
the FDIC. FDIC-guaranteed MCD must, in the debt instrument, provide for 
the mandatory conversion of the debt into the common equity of the 
issuer on a specified date, which must be on or before the expiration 
of the FDIC's guarantee.
    This Final Rule adopts the Interim Rule (as amended by the final 
rule entitled Amendment Of The Temporary Liquidity Guarantee Program To 
Extend The Debt Guarantee Program And To Impose Surcharges On 
Assessments For Certain Debt Issued On Or After April 1, 2009 which was 
issued by the Board on May 19, 2009) with one change.\7\ Because MCD 
does not have a maturity date as such, this Final Rule clarifies that, 
with respect to MCD, the FDIC guarantee covers scheduled payments of 
principal and interest through the date of conversion.
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    \7\ See SUPPLEMENTARY INFORMATION, Section I. Background.
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VI. Regulatory Analysis and Procedure

A. Administrative Procedure Act

    The process of amending Part 370 by means of this Final Rule is 
governed by the Administrative Procedure Act (APA). Pursuant to Section 
553(b)(B) of the APA, general notice and opportunity for public comment 
are not required with respect to a rule making when an agency for good 
cause finds that ``notice and public procedure thereon are 
impracticable, unnecessary, or contrary to the public interest.'' 
Similarly, Section 553(d)(3) of the APA provides that an agency, for 
good cause found and published with the rule, does not have to comply 
with the requirement that a substantive rule be published not less than 
30 days before its effective date. When it issued the Interim Rule, the 
FDIC invoked these good cause exceptions based on the unprecedented 
disruption of the credit markets that has occurred as a result of the 
severe financial conditions that threaten the nation's economy and the 
stability of the banking system. For this same reason, the FDIC invokes 
the good cause exceptions with respect to the Final Rule.

B. Riegle Community Development and Regulatory Improvement Act

    The Riegle Community Development and Regulatory Improvement Act 
provides that any new regulations or amendments to regulations 
prescribed by a Federal banking agency that impose additional 
reporting, disclosures, or other new requirements on insured depository 
institutions shall take effect on the first day of the calendar quarter 
which begins on or after the date on which the regulations are 
published in final form, unless the agency determines, for good cause 
published with the rule, that the rule should become effective before 
such time.\8\
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    \8\ 12 U.S.C. 4802.
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    The FDIC invoked the good cause exception for purposes of the 
Interim Rule because of the unprecedented disruption of the credit 
markets that has occurred as a result of the severe financial 
conditions that threaten the nation's economy and the stability of the 
banking system. The FDIC had determined that any delay of the effective 
date for the Interim Rule would have had serious adverse effects on the 
economy and the stability of the financial system. For these same 
reasons, the FDIC invokes the good cause exception for purposes of the 
Final Rule.

C. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget (OMB) has previously determined 
that the Interim Rule is not a ``major rule'' within the meaning of the 
relevant sections of the Small Business Regulatory Enforcement Act of 
1996 (SBREFA).\9\ The OMB also has determined that this Final Rule is 
not a ``major rule'' within the meaning of the SBREFA.
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    \9\ 5 U.S.C. 801 et seq.
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D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA)\10\ requires an agency to 
prepare a final regulatory flexibility analysis when an agency 
promulgates a final rule under section 553 of the APA, after being 
required by that section to publish a notice of proposed rulemaking. 
Because the FDIC has invoked the good

[[Page 26945]]

cause exception provided for in section 553(b)(B) of the APA, with 
respect to this Final Rule, the RFA's requirement to prepare a final 
regulatory analysis does not apply.
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    \10\ Pub. L. 96-354, Sept. 19, 1980.
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E. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995,\11\ 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. The Final Rule, as did the Interim Rule, 
includes in sections 370.3(h)(1)(v) and 370.3(h)(2) a requirement for 
submission of an application setting forth certain specific items of 
information for institutions seeking to issue FDIC-guaranteed MCD. On 
February 27, 2009, the FDIC requested and received approval under OMB's 
emergency clearance procedures to revise its existing collection of 
information entitled, ``Temporary Liquidity Guarantee Program'' (OMB 
Control No. 3064-0166), to incorporate the paperwork burden associated 
with applications to issue MCD.
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    \11\ 44 U.S.C. 3501 et seq.
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    The Interim Rule requested comments on the paperwork burden 
associated with applications to issue MCD, and only one such comment 
was received. The commenter suggested that in lieu of the extra 
paperwork burden created by the application requirement, the FDIC 
should allow institutions to issue MCD at their own discretion, limited 
only by their debt issuance caps. As noted in the Summary of Comments 
section of the preamble, the information submitted in applications 
allows the FDIC to ensure that proposed transactions will meet the 
requirements of the DGP and confirm that all applicable applications 
and notices have been submitted to the appropriate Federal banking 
agency in cases where the transaction could present a change in control 
issue. Accordingly, the FDIC declines to adopt that suggestion.
    On March 11, 2009, the FDIC began the process for normal clearance 
of the Temporary Liquidity Guarantee Program information collection, 
including applications to issue MCD, with publication of an initial 60-
day notice requesting comment 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; and (5) estimates of capital or start up costs, and costs 
of operation, maintenance and purchase of services to provide the 
information. The comment period ended on May 11, 2009, and no comments 
were received. It will be followed by publication of a second Federal 
Register notice, with a 30-day comment period, of the FDIC's submission 
to OMB of its request for full clearance the collection. Interested 
parties are invited to submit written comments during the 30-day period 
on the estimated burden for applications to issue MCD or any other 
aspect of the Temporary Liquidity Guarantee Program information 
collection by any of the following methods: http://www.FDIC.gov/regulations/laws/federal/propose.html.
     E-mail: [email protected]. Include the name and number of 
the collection in the subject line of the message.
     Mail: Leneta Gregorie (202-898-3719), Counsel, Federal 
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 
20429.
     Hand Delivery: Comments may be hand-delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street), on business days between 7 a.m. and 5 p.m.

A copy of the comment 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 3208, 
Washington, DC 20503. All comments should refer to the name and number 
of the collection.
    The burden estimate for the application to issue FDIC-guaranteed 
mandatory convertible debt is as follows:
    Title: Temporary Liquidity Guarantee Program.
    OMB Number: 3064-0166.
    Frequency of Response: 5.
    Estimated Number of Respondents: 25.
    Average Time for Response: 1 hour.
    Estimated Annual Burden: 125 hours.
    Previous Annual Burden: 2,201,550 hours.
    Total New Burden: 2,201,675 hours.

List of Subjects in 12 CFR Part 370

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

0
Accordingly, the Interim Rule amending 12 CFR part 370 which was 
published at 74 FR 9522 on March 4, 2009 is adopted as a final rule 
with the following change:

PART 370--TEMPORARY LIQUIDITY GUARANTEE PROGRAM

0
1. The authority citation for part 370 shall continue 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. In part 370, amend section 370.12 by revising paragraph (b)(2) as 
follows:

Sec.  370.12  Payment on the guarantee.

* * * * *
    (b) Payments on Guaranteed Debt of participating entities in 
default.
    (1) * * *
    (2) Method of payment. Upon the occurrence of a payment default, 
the FDIC shall satisfy its guarantee obligation by making scheduled 
payments of principal and interest pursuant to the terms of the debt 
instrument through maturity, or in the case of mandatory convertible 
debt, through the mandatory conversion date (without regard to default 
or penalty provisions). Any principal payment on mandatory convertible 
debt shall be limited to amounts paid by holders under the issuance. 
The FDIC may in its discretion, at any time after the expiration of the 
guarantee period, elect to make a final payment of all outstanding 
principal and interest due under a guaranteed debt instrument whose 
maturity extends beyond that date. In such case, the FDIC shall not be 
liable for any prepayment penalty.
* * * * *

    By order of the Board of Directors.

    Dated at Washington, DC, this 29th day of May 2009.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E9-13083 Filed 6-4-09; 8:45 am]
BILLING CODE 6714-01-P
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