September 9, 2009 

MEMORANDUM: The Board of Directors 

FROM: Mitchell L. Glassman, Director 

 Division of Resolutions and Receiverships 

 Sandra L. Thompson, Director 

 Division of Supervision and Consumer Protection 

 Arthur J. Murton, Director 

 Division of Insurance and Research 

 Michael Bradfield 

 General Counsel 

SUBJECT: Notice of Proposed Rulemaking proposing alternatives for concluding the 

debt guarantee component of the Temporary Liquidity Guarantee Program 

(TLGP) 

I. SUMMARY OF RECOMMENDATION 

 Staff recommends that the Board adopt the attached Notice of Proposed 

Rulemaking (NPR) and authorize its publication in the Federal Register. The NPR offers 

two alternatives for phasing out the Debt Guarantee Program (DGP), a component of the 

TLGP. Under Alternative A, the DGP would expire as provided for by the FDIC’s 

existing regulation on October 31, 2009, with the FDIC’s guarantee for such debt 

expiring no later than December 31, 2012. Under Alternative B, the DGP will expire as 

provided for in the current regulation, however, the FDIC would establish a limited sixmonth emergency guarantee facility to be made available in emergency circumstances to 
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insured depository institutions (IDIs) and certain other entities participating in the DGP 

upon application to the FDIC and with the approval of the Chairman, after consultation 

with the Board. 

Discussion 

In October 2008, the FDIC adopted the TLGP. The TLGP is part of a 

coordinated effort by the FDIC and other federal agencies to address recent disruptions in 

credit markets and the resultant inability of financial institutions to obtain funding and 

make loans to creditworthy borrowers. 

The TLGP is composed of two components: a debt guarantee component and a 

transaction account guarantee program.1 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 no later than June 30, 2012. On May 29, 2009, 

for IDIs and certain other entities that previously had participated in the TLGP, the Board 

extended the issuance period for the DGP until a date no later than October 31, 2009, and 

the FDIC’s guarantee until a date no later than December 31, 2012.2 

In the attached NPR, staff presents two alternatives for phasing out the debt 

guarantee component of the TLGP. Since the domestic credit and liquidity markets 

appear to be normalizing and since the number of entities utilizing the DGP has 

decreased, Alternative A proposes that the DGP conclude as provided for in the current 

regulation. Alternative B proposes the expiration of the period for issuing debt under the 

DGP as it currently exists, but adds an emergency guarantee facility to be accessed, if 

emergency circumstances warrant, on a limited, case-by-case basis by IDIs and certain 

other entities participating in the DGP. These entities would be required to apply to and 

receive the prior approval of the FDIC before using the emergency guarantee. This 

 

1

 On August 26, 2009 the Board approved for publication in the Federal Register a final rule 

providing for a six-month extension of the transaction account guarantee (TAG) program, through June 30, 

2010. 74 FR 45093 (September 1, 2009). That final rule was issued following the FDIC’s publication of a 

Notice of Proposed Rulemaking which, similar to this Notice, presented two alternatives for phasing out the 

TAG. [See, 74 FR 31217 (June 30, 2009). 

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 The extension was made available to IDIs and other participating entities that had issued FDICguaranteed debt on or before April 1, 2009, without application to the FDIC. Other participating entities 

that applied to and received approval from the FDIC also were permitted to participate in the extended 

DGP. 
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limited emergency guarantee facility would afford protection to entities participating in 

the DGP that are unable to issue non-guaranteed debt to replace maturing debt because of 

market disruptions or other circumstances beyond their control. 

II. THE NOTICE OF PROPOSED RULEMAKING 

A. Alternative A 

 Alternative A would preserve the current regulation regarding the duration of the 

FDIC’s guarantee of senior unsecured debt under the DGP. Thus, all IDIs participating 

in the DGP (and other participating entities that had either issued guaranteed debt before 

April 1, 2009, or had not issued guaranteed debt before April 1, 2009, but had otherwise 

received the FDIC’s permission to issue non-guaranteed debt) would be permitted to 

issue FDIC-guaranteed senior unsecured debt until October 31, 2009. The FDIC’s 

guarantee for such debt issuances would expire no later than December 31, 2012. 

B. Alternative B 

 Under Alternative B, the general operation of the DGP will expire as provided for 

in the current regulation. In Alternative B, however, the FDIC would establish a limited, 

six-month emergency guarantee facility upon expiration of the DGP on October 31, 2009. 

Under this alternative, all IDIs and other entities that had issued FDIC-guaranteed senior 

unsecured debt pursuant the DGP on or before September 9, 2009, would be permitted to 

apply to access the FDIC’s emergency guarantee facility. The FDIC would consider 

applications to use the emergency guarantee facility on a limited, case-by-case basis if the 

applicant could demonstrate its inability to issue non-guaranteed debt to replace maturing 

debt as a result of market disruptions or other circumstances beyond the applicant’s 

control. 

 If approved, an applicant would be permitted to issue FDIC-guaranteed debt 

through and including April 30, 2010, with the FDIC’s guarantee for such debt expiring 

no later than December 31, 2012. Nothing in proposed Alternative B Rule would affect 
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any conditions that the FDIC previously may have placed on the issuance of debt by an 

IDI or other entity participating in the DGP. The FDIC would be permitted to impose 

additional conditions or limitations (including limiting executive compensation, bonuses, 

or the payment of dividends), as appropriate, on entities permitted to issue guaranteed 

debt under the proposed emergency guarantee facility. 

 A. Application Requirements 

 Under Alternative B applications to participate in the emergency guarantee 

facility would be required to be submitted to the Director of the Division of Supervision 

and Consumer Protection on or before April 30, 2010. The application would be 

expected to include a projection of the sources and uses of funds through December 31, 

2012; a summary of the entity’s contingency plans; a description of the collateral that an 

entity can make available to secure the entity’s obligation to reimburse the FDIC for any 

payments made pursuant to the guarantee; a description of the plans for retirement of the 

FDIC-guaranteed debt; a description of the market disruptions or other circumstances 

beyond the entity’s control that prevent the entity from replacing maturing debt with nonguaranteed debt; a description of management’s efforts to mitigate the effects of such 

disruptions or circumstances; conclusive evidence that demonstrates an entity’s inability 

to issue non-guaranteed debt; and any other relevant information that the FDIC deems 

appropriate. 

 

 B. Participation Fee 

 The proposal outlined in Alternative B provides for an annualized participation 

fee of at least 300 basis points on any FDIC-guaranteed debt issued pursuant to the 

emergency guarantee facility. The FDIC would reserve the discretion to increase the 

participation fee on a case-by-case basis, depending upon the risks present in the issuing 

entity’s organization. The participation fee is intended to limit participation in the 

emergency guarantee facility only to those entities that are unable to rollover maturing 

debt due to market disruptions or other circumstances beyond their control. Staff 

believes that the participation fee may provide an appropriate deterrent to applications 
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based on other, less severe circumstances or concerns. Consistent with the existing DGP, 

a participating entity using the emergency guarantee facility may be required to pledge 

sufficient collateral to ensure the repayment of any principal and interest payments made 

by the FDIC under the guarantee facility and also would be subject to other conditions 

and restrictions that the FDIC deems appropriate, including limiting executive 

compensation, bonuses, or the payment of dividends. 

 Staff recommends that the Board authorize publication of the attached Notice of 

Proposed Rulemaking and seek comments during a 15 day comment period regarding 

which of the two proposed alternatives presents a more effective process for phasing out 

the DGP.