Guarantee of Debt
Under the TLGP, certain newly issued senior unsecured debt issued on or before June 30, 2009, would be fully protected in the event the issuing institution subsequently fails, or its holding company files for bankruptcy.
The TLGP would cover all newly issued senior unsecured debt issued by Eligible Institutions on or before June 30, 2009. This would include promissory notes, commercial paper, interbank funding and any unsecured portion of secured debt. The amount of debt covered by the guarantee is limited to 125% of debt that was outstanding as of September 30, 2008 that was scheduled to mature before June 30, 2009.
The guarantee will terminate on June 30, 2012, even if the debt has not matured.
Deposit Insurance
Eligible Institutions will be able to provide full deposit insurance coverage for noninterest bearing deposit transaction accounts, regardless of dollar amount.
These are mainly payment processing accounts, such as payroll accounts used by businesses.
This guarantee expires on December 31, 2009.
Fees
Under the TLGP, there will be no fees for the first 30 days. Thereafter, a fee would be imposed as follows:
- For all newly issued senior unsecured debt, an annualized fee equal to 75 basis points multiplied by the amount of guaranteed debt.
- For noninterest-bearing transaction deposit accounts, a 10 basis point surcharge would be applied to noninterest-bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of $250,000. This surcharge will be added to the participating bank’s existing risk-based deposit insurance premium paid on those deposits.
Duration
All Eligible Institutions will be covered under the TLGP for a period of 30 days. Prior to the end of this period, Eligible Institutions must inform the FDIC whether they will opt out of the guarantee program. If an Eligible Institution opts out of the TLGP, the guarantee on newly issued senior unsecured debt and noninterest-bearing transaction deposit accounts will expire at the end of the 30-day period.
Supervisory Enhancement
Eligible Institutions availing themselves of the TLGP will be subject to enhanced supervisory oversight to prevent rapid growth or excessive risk taking.
For further information on the TLGP, please contact Timothy M. Sullivan or your regular Hinshaw attorney.
This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. |