26 November 2008

[Federal Register: November 26, 2008 (Volume 73, Number 229)]
[Rules and Regulations]               
[Page 72243-72273]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26no08-23]                         


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Part VII

Federal Deposit Insurance Corporation

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12 CFR Part 370

Temporary Liquidity Guarantee Program; Final Rule

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 370

RIN 3064-AD37

 
Temporary Liquidity Guarantee Program

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is adopting a Final Rule to implement its Temporary 
Liquidity Guarantee Program. The Temporary Liquidity Guarantee Program, 
designed to avoid or mitigate adverse effects on economic conditions or 
financial stability, has two primary components: The Debt Guarantee 
Program, by which the FDIC will guarantee the payment of certain newly-
issued senior unsecured debt, and the Transaction Account Guarantee 
Program, by which the FDIC will guarantee certain noninterest-bearing 
transaction accounts.

DATES: Effective Date: The Final Rule becomes effective on November 21, 
2008, except that Sec.  370.5(h)(2), (h)(3), and (h)(4) are effective 
December 19, 2008.

FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Section Chief, 
Division of Insurance and Research, (202) 898-8967 or 
mstclair@fdic.gov; Lisa Ryu, Section Chief, Division of Insurance and 
Research, (202) 898-3538 or LRyu@fdic.gov; Richard Bogue, Counsel, 
Legal Division, (202) 898-3726 or rbogue@fdic.gov; Robert Fick, 
Counsel, Legal Division, (202) 898-8962 or rfick@fdic.gov; A. Ann 
Johnson, Counsel, Legal Division, (202) 898-3573 or aajohnson@fdic.gov; 
Gail Patelunas, Deputy Director, Division of Resolutions and 
Receiverships, (202) 898-6779 or gpatelunas@fdic.gov; John Corston, 
Associate Director, Large Bank Supervision, Division of Supervision and 
Consumer Protection, (202) 898-6548 or jcorston@fdic.gov; Serena L. 
Owens, Associate Director, Supervision and Applications Branch, 
Division of Supervision and Consumer Protection, (202) 898-8996 or 
sowens@fdic.gov; Donna Saulnier, Manager, Assessment Policy Section, 
Division of Finance, (703) 562-6167 or dsaulnier@fdic.gov; Michael L. 
Hetzner, Senior Assessment Specialist, Division of Finance, (703) 562-
6405 or mhetzner@fdic.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    On November 21, 2008, the Board of Directors (Board) of the Federal 
Deposit Insurance Corporation (FDIC) adopted a Final Rule relating to 
the Temporary Liquidity Guarantee Program (TLG Program). The TLG 
Program was announced by the FDIC on October 14, 2008, as an initiative 
to counter the current system-wide crisis in the nation's financial 
sector. It provided two limited guarantee programs: One that guaranteed 
newly-issued senior unsecured debt of insured depository institutions 
and most U.S. holding companies (the Debt Guarantee Program), and 
another that guaranteed certain noninterest-bearing transaction 
accounts at insured depository institutions (the Transaction Account 
Guarantee Program).
    The FDIC's establishment of the TLG Program was preceded by a 
determination of systemic risk by the Secretary of the Treasury (after 
consultation with the President), following receipt of the written 
recommendation of the Board on October 13, 2008, along with a similar 
written recommendation of the Board of Governors of the Federal Reserve 
System (FRB).
    The recommendations and eventual determination of systemic risk 
were made in accordance with section 13(c)(4)(G) to the Federal Deposit 
Insurance Act (FDI Act), 12 U.S.C. 1823(c)(4)(G). The determination of 
systemic risk allowed the FDIC to take certain actions to avoid or 
mitigate serious adverse effects on economic conditions and financial 
stability. The FDIC believes that the TLG Program promotes financial 
stability by preserving confidence in the banking system and 
encouraging liquidity in order to ease lending to creditworthy 
businesses and consumers. The FDIC anticipates that the TLG Program 
will favorably impact both the availability and the cost of credit. As 
a result, on October 23, 2008, the FDIC's Board authorized publication 
in the Federal Register and requested comment regarding an Interim Rule 
designed to implement the TLG Program. The Interim Rule with request 
for comments was published on October 29, 2008, and provided for a 15 
day comment period.\1\
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    \1\ 73 FR 64179 (Oct. 29, 2008).
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    Later, the FDIC amended its Interim Rule. The Amended Interim Rule 
became effective on November 4, 2008, and was published in the Federal 
Register on November 7, 2008. It made three limited modifications to 
the Interim Rule. In the Amended Interim Rule, the FDIC extended the 
opt-out deadline for participation in the TLG Program from November 12, 
2008 until December 5, 2008; extended the deadline for complying with 
specific disclosure requirements related to the TLG Program from 
December 1, 2008 until December 19, 2008; and established assessment 
procedures to accommodate the extended opt-out period. Additionally, in 
issuing the Amended Interim Rule, the FDIC requested comment on three 
additional questions relating to the TLG Program.
    The FDIC received over 700 comments on the Interim Rule and the 
Amended Interim Rule and, after consideration of those comments, issues 
the Final Rule that follows.

II. The Interim Rule

    The Interim Rule permitted the following eligible entities to 
participate in the TLG Program: FDIC-insured depository institutions, 
any U.S. bank holding company or financial holding company, and any 
U.S. savings and loan holding company that either engaged only in 
activities permissible for financial holding companies to conduct under 
section (4)(k) of the Bank Holding Company Act of 1956 (BHCA) or had at 
least one insured depository institution subsidiary that was the 
subject of an application that was pending on October 13, 2008, 
pursuant to section 4(c)(8) of the BHCA. To be considered an ``eligible 
entity'' under the Interim Rule, both bank holding companies and 
savings and loan holding companies were required to have at least one 
chartered and operating insured depository institution within their 
holding company structure The Interim Rule permitted other affiliates 
of insured depository institutions to participate in the program, with 
the permission of the FDIC, granted in its sole discretion and on a 
case-by-case basis, after written request and positive recommendation 
by the appropriate Federal banking agency. In making this 
determination, the FDIC would consider such factors as (1) the extent 
of the financial activity of the entities within the holding company 
structure; (2) the strength, from a ratings perspective, of the issuer 
of the obligations that will be guaranteed; and (3) the size and extent 
of the activities of the organization.
    The TLG Program became effective on October 14, 2008. The Interim 
Rule provided that from October 14, 2008, all eligible entities would 
be covered under both components of the TLG Program for the first 30 
days of the program unless they opted out of either component of the 
Program before then. Under the Interim Rule, the guarantees provided by 
the TLG Program under either the Debt Guarantee Program or the 
Transaction Account Guarantee Program would be offered at no cost to

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eligible entities until November 13, 2008. The Interim Rule provided 
that by 11:59 p.m., Eastern Standard Time (EST) on November 12, 2008, 
eligible entities were required to inform the FDIC whether they 
intended to opt-out of one or both components of the TLG Program. (The 
Interim Rule also permitted eligible entities to notify the FDIC before 
that date of their intent to participate in the program.) An eligible 
entity that did not opt-out of either or both programs became a 
participating entity in the program, according to the Interim Rule. 
Eligible entities that did not opt-out of the Debt Guarantee Program by 
the opt-out date of November 12, 2008, were not permitted to select 
which of their newly-issued senior unsecured debt would be guaranteed; 
the Interim Rule provided that all senior unsecured debt issued by a 
participating entity up to a limit of 125 percent of all senior 
unsecured debt outstanding on September 30, 2008, and maturing by June 
30, 2009, would be considered guaranteed debt when issued. The Interim 
Rule allowed a participating entity to make a separate election and pay 
a nonrefundable fee to issue non-guaranteed senior unsecured debt with 
a maturity date after June 30, 2012, prior to reaching the 125 percent 
debt guarantee limit.
    The Interim Rule permitted an eligible entity to opt-out of either 
the Debt Guarantee Program or the Transaction Account Guarantee Program 
or of both components of the TLG Program, but required all eligible 
entities within a U.S. Banking Holding Company or a U.S. Savings and 
Loan Holding Company structure to make the same decision regarding 
continued participation in each component of the TLG Program or none of 
the members of the holding company structure were considered eligible 
for participation in that component of the TLG Program.
    The Interim Rule required an eligible entity's opt-out decision(s) 
to be made publicly available. In the Interim Rule, the FDIC committed 
to maintain and post on its website a list of entities that opted out 
of either or both components of the TLG Program. The Interim Rule 
required each eligible entity to make clear to relevant parties whether 
or not it chose to participate in either or both components of the TLG 
Program.
    According to the Interim Rule, if an eligible entity remained in 
the Debt Guarantee Program of the TLG Program, it was required to 
clearly disclose to interested lenders and creditors, in writing and in 
a commercially reasonable manner, what debt it was offering and whether 
the debt was guaranteed under this program. Similarly, the Interim Rule 
provided that an eligible entity had to prominently post a notice in 
the lobby of its main office and at all of its branches disclosing its 
decision on whether to participate in, or opt-out of, the Transaction 
Account Guarantee Program. These disclosures were required to be 
provided in simple, readily understandable text, and, if the eligible 
entity decided to participate in the Transaction Account Guarantee 
Program, the Interim Rule required the notice to state that 
noninterest-bearing transaction accounts were fully guaranteed by the 
FDIC. The Interim Rule provided that if the institution used sweep 
arrangements or took other actions that resulted in funds in a 
noninterest-bearing transaction account being transferred to or 
reclassified as an interest-bearing account or a non-transaction 
account, the institution also must disclose those actions to the 
affected customers and clearly advise them in writing that such actions 
would void the transaction account guarantee. The Interim Rule required 
the described disclosures to be made by December 1, 2008.

A. The Debt Guarantee Program

    The Debt Guarantee Program, as described in the Interim Rule, 
temporarily would guarantee all newly-issued senior unsecured debt up 
to prescribed limits issued by participating entities on or after 
October 14, 2008, through and including June 30, 2009. The guarantee 
would not extend beyond June 30, 2012. The Interim Rule explained that, 
as a result of this guarantee, the unpaid principal and contract 
interest of an entity's newly-issued senior unsecured debt would be 
paid by the FDIC if the issuing insured depository institution failed 
or if a bankruptcy petition were filed by the respective issuing 
holding company.
    In the Interim Rule, senior unsecured debt included, without 
limitation, federal funds purchased, promissory notes, commercial 
paper, unsubordinated unsecured notes, certificates of deposit standing 
to the credit of a bank, bank deposits in an international banking 
facility (IBF) of an insured depository institution, and Eurodollar 
deposits standing to the credit of a bank. Senior unsecured debt was 
permitted to be denominated in foreign currency. For purposes of the 
Interim Rule, the term ``bank'' in the phrase ``standing to the credit 
of a bank'' meant an insured depository institution or a depository 
institution regulated by a foreign bank supervisory agency. To be 
eligible for the Debt Guarantee Program, senior unsecured debt was 
required to be noncontingent. Finally, the Interim Rule required senior 
unsecured debt to be evidenced by a written agreement, contain a 
specified and fixed principal amount to be paid on a date certain, and 
not be subordinated to another liability.
    The preamble to the Interim Rule explained that the purpose of the 
Debt Guarantee Program was to provide liquidity to the inter-bank 
lending market and promote stability in the unsecured funding market 
and not to encourage innovative, exotic or complex funding structures 
or to protect lenders who make risky loans. Thus, as explained in the 
Interim Rule, for purposes of the Debt Guarantee Program, some 
instruments were excluded from the definition of senior unsecured debt. 
Some of these exclusions from that definition were, for example, 
obligations from guarantees or other contingent liabilities, 
derivatives, derivative-linked products, debt paired with any other 
security, convertible debt, capital notes, the unsecured portion of 
otherwise secured debt, negotiable certificates of deposit, and 
deposits in foreign currency and Eurodollar deposits that represent 
funds swept from individual, partnership or corporate accounts held at 
insured depository institutions. Also excluded from the definition of 
``senior unsecured debt'' were loans from affiliates, including parents 
and subsidiaries, and institution-affiliated parties.
    The Interim Rule explained that debt eligible for coverage under 
the Debt Guarantee Program had to be issued by participating entities 
on or before June 30, 2009. The FDIC agreed to guarantee such debt 
until the earlier of the maturity date of the debt or until June 30, 
2012. The Interim Rule provided an absolute limit for coverage: 
coverage would expire at 11:59 p.m. EST on June 30, 2012, whether or 
not the liability had matured at that time. In order for the newly-
issued senior unsecured debt to be guaranteed by the FDIC, the Interim 
Rule required the debt instrument to be clearly identified as 
``guaranteed by the FDIC.''
    As explained in the Interim Rule, absent additional action by the 
FDIC, the maximum amount of senior unsecured debt that could be issued 
pursuant to the Debt Guarantee Program was equal to 125 percent of the 
par or face value of senior unsecured debt outstanding as of September 
30, 2008, that was scheduled to mature on or before June 30, 2009. The 
Interim Rule provided that the maximum guaranteed amount would be 
calculated for each individual participating entity within a holding 
company structure. In the

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Interim Rule, the FDIC outlined procedures that required each 
participating entity to calculate its outstanding senior unsecured debt 
as of September 30, 2008, and to provide that information--even if the 
amount of the senior unsecured debt was zero--to the FDIC.
    The 125 percent limit described in the Interim Rule could be 
adjusted for participating entities if the FDIC, in consultation with 
any appropriate Federal banking agency, determined it was necessary. 
Additionally, the Interim Rule provided that, after written request and 
positive recommendation by the appropriate Federal banking agency, the 
FDIC, in its sole discretion and on a case-by-case basis, may allow an 
affiliate of a participating entity to take part in the Debt Guarantee 
Program. Factors that would be relevant to this determination are (1) 
the extent of the financial activity of the entities within the holding 
company structure; (2) the strength, from a ratings perspective, of the 
issuer of the obligations that will be guaranteed; and (3) the size and 
extent of the activities of the organization.
    The Interim Rule also stated that, again, on a case-by case basis, 
the FDIC could authorize a participating entity to exceed the 125 
percent limitation or limit its participation to less than 125 percent.
    A participating entity was prohibited by the Interim Rule from 
representing that its debt was guaranteed by the FDIC if it did not 
comply with the rules governing the Debt Guarantee Program. If the 
issuing entity opted out of the Debt Guarantee Program, the Interim 
Rule provided that it could no longer represent that its newly-issued 
debt was guaranteed by the FDIC. Similarly, once an entity has reached 
its 125 percent limit, it was prohibited from representing that any 
additional debt was guaranteed by the FDIC, and was required to 
specifically disclose that such debt was not guaranteed.
    After consultation with a participating entity's appropriate 
Federal banking agency, the Interim Rule provided that the FDIC, in its 
discretion, could determine that a participating entity should not be 
permitted to continue to participate in the TLG Program. The FDIC 
explained that termination of an entity's participation in the Program 
would have only a prospective effect, and the FDIC required the entity 
to notify its customers and creditors that it was no longer issuing 
guaranteed debt.
    Under the Interim Rule, entities that chose to participate in the 
Debt Guarantee Program and to issue guaranteed debt had to agree to 
supply information requested by the FDIC, as well as to be subject to 
periodic FDIC on-site reviews as needed after consultation with the 
appropriate federal banking agency to determine compliance with the 
terms and requirements of the TLG Program. Participating entities also 
would be bound by the FDIC's decisions, in consultation with the 
appropriate Federal banking agency, regarding the management of the TLG 
Program. If an entity participated in the Debt Guarantee Program, the 
Interim Rule provided that it was not exempt from complying with 
federal and state securities laws and with any other applicable laws.

B. The Transaction Account Guarantee Program

    The Transaction Account Guarantee Program as described in the 
Interim Rule, provided for a temporary full guarantee by the FDIC for 
funds held at FDIC-insured depository institutions in noninterest-
bearing transaction accounts above the existing deposit insurance 
limit. This coverage became effective on October 14, 2008, and would 
continue through December 31, 2009 (assuming that the insured 
depository institution does not opt-out of this component of the TLG 
Program).
    Under the Interim Rule, a ``noninterest-bearing transaction 
account'' was defined as a transaction account with respect to which 
interest is neither accrued nor paid and on which the insured 
depository institution does not reserve the right to require advance 
notice of an intended withdrawal. This definition was designed to 
encompass traditional demand deposit checking accounts that allowed for 
an unlimited number of deposits and withdrawals at any time and 
official checks issued by an insured depository institution. The 
definition contained in the Interim Rule specifically did not include 
negotiable order of withdrawal (NOW) accounts or money market deposit 
accounts (MMDAs).
    The Interim Rule recognized that depository institutions sometimes 
waive fees or provide fee-reducing credits for customers with checking 
accounts and stated that such account features do not prevent an 
account from qualifying under the Transaction Account Guarantee 
Program, if the account otherwise satisfies the definition.
    The Interim Rule clarified that the guarantee provided for 
noninterest-bearing transaction accounts is in addition to and separate 
from the general deposit insurance coverage provided for in 12 CFR Part 
330. The FDIC stated that although the unlimited coverage for 
noninterest-bearing transaction accounts under the TLG Program is 
intended primarily to apply to transaction accounts held by businesses, 
it also applies to all such accounts held by any depositor.
    The Interim Rule included a provision relating to sweep accounts. 
Under this provision, the FDIC stated that it would treat funds in 
sweep accounts in accordance with the usual rules and procedures for 
determining sweep balances at a failed depository institution. Under 
these procedures, funds may be swept or transferred from a noninterest-
bearing transaction account to another type of deposit or nondeposit 
account, and the FDIC stated that it would treat the funds as being in 
the account to which the funds were transferred. The Interim Rule 
provided an exception for funds swept from a noninterest-bearing 
transaction account to a noninterest-bearing savings account: \2\ such 
swept funds would be treated as being in a noninterest-bearing 
transaction account. As a result of this treatment, the Interim Rule 
provided that funds swept into a noninterest-bearing savings account 
would be guaranteed under the Transaction Account Guarantee Program.
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    \2\ For purposes of this rule, ``savings account'' is a type of 
``savings deposit'' as defined in Regulation D issued by the Board 
of Governors of the Federal Reserve System, 12 CFR 204.2(d).
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C. Fees for the TLG Program

    The Interim Rule provided for fees related to both components of 
the TLG Program. It provided that, beginning on November 13, 2008, any 
eligible entity that had not opted out of the Debt Guarantee Program 
would be assessed fees for continued coverage. According to the Interim 
Rule, all eligible debt issued by such entities from October 14, 2008 
(and still outstanding on November 13, 2008), through June 30, 2009, 
would be charged an annualized fee equal to 75 basis points multiplied 
by the amount of debt issued, and calculated for the maturity period of 
that debt or June 30, 2012, whichever was earlier. (The Interim Rule 
explained that a deduction from this calculation would be made for the 
first 30 days of the program, for which no fees would be charged.) The 
Interim Rule further provided that if any participating entity issued 
eligible debt guaranteed by the Debt Guarantee Program, the 
participating entity's assessment would be based on the total amount of 
debt issued and the maturity date at issuance and that if the 
guaranteed debt was ultimately retired before its scheduled

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maturity, there would be no refund of pre-paid fees.
    If an eligible entity did not opt-out, the Interim Rule indicated 
that all newly-issued senior unsecured debt up to the maximum amount 
would become guaranteed as and when issued. Participating entities were 
prohibited from issuing guaranteed debt in excess of the maximum amount 
for the institution and also were prohibited from issuing non-
guaranteed debt until the maximum allowable amount of guaranteed debt 
had been issued.
    The Interim Rule permitted one exception to the prohibition against 
issuing non-guaranteed debt until the maximum allowable amount of 
guaranteed debt had been issued. A participating entity could issue 
non-guaranteed debt with maturities beyond June 30, 2012, at any time, 
in any amount, and without regard to the guarantee limit only if the 
entity informed the FDIC of its election to do so. This election was 
required to be made through FDICconnect on or before11:59 pm EST on 
November 12, 2008, and any party exercising this option was required to 
pay a non-refundable fee. This non-refundable fee equaled 37.5 basis 
points times the amount of the entity's senior unsecured debt with a 
maturity date on or before June 30, 2009, outstanding as of September 
30, 2008.
    If a participating entity nonetheless issued debt identified as 
``guaranteed by the FDIC'' in excess of the FDIC'S limit, according to 
the Interim Rule, the participating entity would have its assessment 
rate for guaranteed debt increased to 150 basis points on all 
outstanding guaranteed debt. For this violation (and for other 
violations of the TLG Program), a participating entity and its 
institution-affiliated parties will be subject to enforcement actions 
under section 8 of the FDI Act (12 U.S.C. 1818), including, for 
example, assessment of civil money penalties under section 8(i) of the 
FDI Act (12 U.S.C. 1818(i)), removal and prohibition orders under 
section 8(e) of the FDI Act (12 U.S.C. 1818(e)), and cease and desist 
orders under section 8(b) of the FDI Act (12 U.S.C. 1818(b)). The 
violation of any provision of the program by an insured depository 
institution also constitutes grounds for terminating the institution's 
deposit insurance under section 8(a)(2) of the FDI Act (12 U.S.C. 
1818(a)(2)). The appropriate Federal banking agency for the 
participating entity will consult with the FDIC in enforcing the 
provisions of this part. The appropriate Federal banking agency and the 
FDIC also have enforcement authority under section 18(a)(4)(C) of the 
FDI Act (12 U.S.C. 1828(a)(4)(C)) to pursue an enforcement action if a 
person knowingly misrepresents that any deposit liability, obligation, 
certificate, or share is insured when it is not in fact insured. 
Moreover, a participating entity's default in the payment of any debt 
may be considered an unsafe or unsound practice and may result in 
enforcement action.
    The Interim Rule recognized that much of the outstanding debt as of 
September 30, 2008, which was not guaranteed, would be rolled over into 
guaranteed debt only when the outstanding debt matured. The Interim 
Rule stated that the nonrefundable fee would be collected in six equal 
monthly installments. The Interim Rule provided that an entity electing 
the nonrefundable fee option also would be billed as it issued 
guaranteed debt under the Debt Guarantee Program, and that the amounts 
paid as a nonrefundable fee were to be applied to offset these bills 
until the nonrefundable fee was exhausted. Thereafter, according to the 
Interim Rule, the institution would be required to pay additional 
assessments on guaranteed debt as it issued the debt.
    Under the Transaction Account Guarantee Program described in the 
Interim Rule, the FDIC committed to provide a full guarantee for 
deposits held at FDIC-insured institutions in noninterest-bearing 
transaction accounts. This coverage became effective on October 14, 
2008, and would expire on December 31, 2009 (assuming the insured 
depository institution did not opt-out of the Transaction Account 
Guarantee Program). The Interim Rule provided that all insured 
depository institutions were automatically enrolled in the Transaction 
Account Guarantee Program for an initial thirty-day period (from 
October 14, 2008, through November 12, 2008) at no cost.
    Beginning on November 13, 2008, if an insured depository 
institution did not opt-out of the Transaction Account Guarantee 
Program, it would be assessed on a quarterly basis an annualized 10 
basis point assessment on balances in noninterest-bearing transaction 
accounts that exceed the existing deposit insurance limit of $250,000, 
according to the Interim Rule. In the Interim Rule, the FDIC stated its 
intent to collect such assessments at the same time and in the same 
manner as it collects an institution's quarterly deposit insurance 
assessments under existing part 327, although the assessments related 
to the Transaction Account Guarantee Program would be in addition to an 
institution's risk-based assessment imposed under that part.
    The Interim Rule also required the FDIC to impose an emergency 
systemic risk assessment on insured depository institutions if the fees 
and assessments collected under the TLG Program proved insufficient to 
cover losses incurred as a result of the program. In addition, if at 
the conclusion of these programs there were any excess funds collected 
from the fees associated with the TLG Program, the Interim Rule 
provided that the funds would remain as part of the Deposit Insurance 
Fund.

D. Payment of Claims by the FDIC Pursuant to the Transaction Account 
Guarantee Program

    The Interim Rule established a process for payment and recovery of 
FDIC guarantees of ``noninterest-bearing transaction accounts.'' In the 
Interim Rule, the FDIC stated that its obligation to make payment, as 
guarantor of deposits held in noninterest-bearing transaction accounts, 
arose upon the failure of a participating federally insured depository 
institution. The Interim Rule also noted that the payment and claims 
process for satisfying claims under the Transaction Account Guarantee 
Program generally would follow the procedures prescribed for deposit 
insurance claims pursuant to section 11(f) of the FDI Act, 12 U.S.C. 
1821(f), and that the FDIC would be subrogated to the rights of 
depositors against the institution pursuant to section 11(g) of the FDI 
Act, 12 U.S.C. 1821(g).
    The FDIC stated that it would make payment to the depositor for the 
guaranteed amount under the Transaction Account Guarantee Program or 
would make such guaranteed amounts available in an account at another 
insured depository institution when it fulfilled its deposit insurance 
obligation under Part 330. The Interim Rule provided that the payment 
made pursuant to the Transaction Account Guarantee Program would be 
made as soon as possible after the FDIC, in its sole discretion, 
determined whether the deposit was eligible and what amount would be 
guaranteed. In the preamble to the Interim Rule, the FDIC stated its 
intent to make the entire amount of a qualifying transaction account 
available to the depositor on the next business day following the 
failure of an institution that participated in the Transaction Account 
Guarantee Program. If there is no acquiring institution for a 
transaction account guaranteed by the Transaction Account Guarantee 
Program, in the preamble to the Interim Rule, the FDIC also stated its 
intent to mail a check to the depositor for the full amount of the 
guaranteed

[[Page 72248]]

account within days of the insured depository institution's failure.
    The Interim Rule provided that the FDIC would be subrogated to all 
rights of the depositor against the institution with respect to 
noninterest-bearing transaction accounts guaranteed by the Transaction 
Account Guarantee Program, and the preamble explained that this 
included the right of the FDIC to receive dividends from the proceeds 
of the receivership estate of the institution. The preamble to the 
Interim Rule also explained that the FDIC, as manager of the Deposit 
Insurance Fund, would be entitled to receive dividends in the deposit 
class for that portion of the account and that the FDIC would be 
entitled to receive dividends from the receiver for assuming its 
obligation with regard to the uninsured portion of the guaranteed 
transactional deposit accounts.
    The Interim Rule provided that claims related to noninterest-
bearing transaction accounts would be paid in accordance with 12 U.S.C. 
1821(f) and 12 CFR 330. The preamble to that rule provided that in 
paying such claims, the FDIC would rely on the books and records of the 
insured depository institution to establish ownership and that the FDIC 
could require a claimant to file a proof of claim (POC) in accordance 
with section 11(f)(2) of the FDI Act, 12 U.S.C. 1821(f)(2). The Interim 
Rule provided that the FDIC's determination of the guaranteed amount 
would be final and would be considered a final administrative 
determination subject to judicial review in accordance with Chapter 7 
of Title 5. The Interim Rule permitted a noninterest-bearing 
transaction account depositor to seek judicial review of the FDIC's 
determination on payment of the guaranteed amount in the United States 
district court for the federal judicial district where the principal 
place of business of the depository institution is located within 60 
days of the date on which the FDIC's final determination is issued.

E. Payment of Claims by the FDIC Pursuant to the Debt Guarantee 
Program: Insured Depository Institution Debt

    The Interim Rule indicated that, with respect to debt issued by an 
insured depository institution, the FDIC's obligation to make payment 
is triggered by the failure of a participating insured depository 
institution and that the FDIC would use its established receivership 
claims process to process guarantee requests. The Interim Rule required 
claimants under the Debt Guarantee Program to present their claims 
within 90 days of the publication of the claims notice by the receiver 
for the failed institution. In the preamble to the Interim Rule, the 
FDIC projected that many debtholders, particularly sellers of federal 
funds, would be paid on the next business day immediately following the 
failure of an insured depository institution, but that, in all 
instances, the FDIC would commit to pay claims expeditiously and strive 
to make payment on the business day following the establishment of the 
validity of the claim. The Interim Rule also provided that the FDIC 
would be subrogated to the rights of any creditor paid under this 
aspect of the Debt Guarantee Program.

F. Payment of Claims by the FDIC Pursuant to the Debt Guarantee 
Program: Holding Company Debt

    Under the Interim Rule, for senior unsecured debt of holding 
companies eligible for payment based on the Debt Guarantee Program, the 
FDIC's obligation to make payment would be triggered on the date of the 
filing of a bankruptcy petition involving a participating holding 
company. The Interim Rule also provided that the FDIC would pay the 
debtholder the principal amount of the debt and contract interest to 
the date of the filing of the bankruptcy petition and that the FDIC 
would pay interest on a claim for debt until paid at the 90-day T-bill 
rate in effect when the bankruptcy petition was filed if payment for 
the claim were delayed beyond the next business day after the filing of 
the bankruptcy petition.
    As with claims for debt issued by insured depository institutions, 
in the Interim Rule, the FDIC committed to expedite the claims payment 
process related to guaranteed debt, but the FDIC stated that it would 
not be required to make payment on the guaranteed amount for a debt 
asserted against a bankruptcy estate, unless and until the claim for 
the unsecured senior debt has been determined to be an allowed claim 
against the bankruptcy estate and such claim was not subject to 
reconsideration under 11 U.S.C. 502(j).
    The Interim Rule required the holder of eligible debt to file a 
timely claim against a participating holding company's bankruptcy 
estate and to submit evidence of the timely filed bankruptcy POC to the 
FDIC within 90 days of the published bar date of the bankruptcy 
proceeding. In the preamble to the Interim Rule, the FDIC explained 
that it could also consider the books and records of the holding 
company and its affiliates to determine the holder of the unsecured 
senior debt and the amount eligible for payment under the Debt 
Guarantee Program.
    The Interim Rule required the holder of the senior unsecured debt 
to assign its rights, title and interest in the unsecured senior debt 
to the FDIC and to transfer its allowed claim in bankruptcy to the FDIC 
to receive payment under the Debt Guarantee Program. The Interim Rule 
explained that this assignment included the right of the FDIC to 
receive principal and interest payments on the unsecured senior debt 
from the proceeds of the bankruptcy estate of the holding company. The 
assignment, as explained in the preamble to the Interim Rule, would 
entitle the FDIC to receive distributions from the liquidation or other 
resolution of the bankruptcy estate in accordance with 11 U.S.C. 726 or 
a confirmed plan of reorganization or liquidation in accordance with 11 
U.S.C. 1129. The Interim Rule also provided that if the holder of the 
senior unsecured debt received any distribution from the bankruptcy 
estate prior to the FDIC's payment under the guarantee, the guaranteed 
amount paid by the FDIC would be reduced by the amount the holder 
received in the distribution from the bankruptcy estate.

III. The Amended Interim Rule

    The Interim Rule established an opt-out deadline of November 12, 
2008, and a deadline of November 13, 2008, for submitting comments to 
the FDIC relating to the Interim Rule. The FDIC intended to issue a 
final rule only after the expiration of the comment period and 
consideration of comments related to the Interim Rule. In order to 
provide eligible entities an opportunity to review the final rule 
before they were required to decide whether or not to opt-out of the 
TLG Program, the FDIC amended its Interim Rule. The Amended Interim 
Rule differs from the Interim Rule in three ways: It extended the opt-
out date for participation in the TLG Program from November 12, 2008, 
until December 5, 2008; extended the deadline for complying with 
specific disclosure requirements related to the TLG Program from 
December 1, 2008 until December 19, 2008; and established some changes 
to the previously announced assessment procedures to accommodate the 
extended opt-out period. Apart from these and other related conforming 
technical modifications, as well as a few grammatical changes, the 
Amended Interim Rule made no other modifications to the text of the 
Interim Rule.
    When establishing December 5, 2008, as the new opt-out deadline, 
the FDIC

[[Page 72249]]

amended the Interim Rule to make conforming modifications to part 370 
that referred to or were based upon the previous opt-out deadline of 
November 12, 2008. These amendments were considered technical. As 
evidenced by the discussion that follows, other changes in the Amended 
Interim Rule that related to assessments under the Debt Guarantee 
Program and the Transaction Account Guarantee Program could be 
considered more substantive.
    According to the Interim Rule, eligible entities were not required 
to pay any assessment associated with the Debt Guarantee Program for 
the period from October 14, 2008, through November 12, 2008. The 
Amended Interim Rule retained this provision. In addition, the Amended 
Interim Rule provided that if an eligible entity opted out of the Debt 
Guarantee Program by the extended deadline of December 5, 2008, the 
entity would not be required to pay any assessment under the program.
    The Interim Rule also contained notice and certification 
requirements for eligible entities that issue guaranteed debt under the 
Debt Guarantee Program for the period from October 14, 2008 through 
November 12, 2008, and for the period after November 12, 2008, 
respectively. Although the notification and certification requirements 
did not change in the Amended Interim Rule, the references in those 
sections to the former opt-out deadline of November 12, 2008, were 
changed to reflect the new opt-out deadline of December 5, 2008.
    Regarding the initiation of assessments related to the Debt 
Guarantee Program, the Interim Rule provided that beginning on November 
13, 2008, any eligible entity that had chosen not to opt-out of this 
aspect of the TLG Program would be charged assessments as provided in 
part 370. The Interim Rule did not distinguish between overnight debt 
instruments and other types of newly-issued senior unsecured debt. 
Although the manner of calculating assessments did not change in the 
Amended Interim Rule, the revisions relating to the initiation of 
assessments reflected two modifications. The first change reflected the 
newly extended opt-out deadline, and the second change differentiated 
between overnight debt instruments and other newly-issued senior 
unsecured debt and explained how assessments would be treated for 
overnight debt instruments as compared with other newly-issued senior 
unsecured debt.
    The Amended Interim Rule provided that assessments would accrue, 
with respect to each eligible entity that did not opt-out of the Debt 
Guarantee Program on or before December 5, 2008: (1) Beginning on 
November 13, 2008, on all senior unsecured debt, other than overnight 
debt instruments, issued by it on or after October 14, 2008, that was 
still outstanding on November 13, 2008; (2) beginning on November 13, 
2008, on all senior unsecured debt, other than overnight debt 
instruments, issued by it on or after November 13, 2008, and before 
December 6, 2008; and (3) beginning on December 6, 2008, on all senior 
unsecured debt issued by it on or after December 6, 2008. According to 
the Amended Interim Rule, calculations related to both overnight debt 
instruments and other newly-issued unsecured debt continue to be made 
in accordance with the Interim Rule.
    According to the Interim Rule, eligible entities were not required 
to pay an assessment associated with the Transaction Account Guarantee 
Program from the period from October 14, 2008, through November 12, 
2008. To this, the Amended Interim Rule added that if an eligible 
entity opted out of the Transaction Account Guarantee Program by the 
extended opt-out deadline of December 5, 2008, then it would not be 
responsible for paying any assessment under the program.
    Regarding the initiation of assessments for the Transaction Account 
Guarantee Program, the Interim Rule provided that for the period 
beginning on November 13, 2008, and continuing through December 31, 
2009, any eligible entity that did not notify the FDIC that it had 
opted out of this component would be charged an assessment for its 
participation in the Transaction Account Guarantee Program. The Amended 
Interim Rule reflected the newly-extended opt-out date. The Amended 
Interim Rule provided that beginning on November 13, 2008, an eligible 
entity that had not opted out of the Transaction Account Guarantee 
Program on or before December 5, 2008, would be required to pay the 
FDIC assessments on all deposit amounts in noninterest-bearing 
transaction accounts. The Amended Interim Rule also indicated that 
calculations related to the amount of assessments for the Transaction 
Account Guarantee Program would continue to be made in accordance with 
the Interim Rule.

IV. Comments on the Interim Rule and the Amended Interim Rule

    The FDIC received over [700] comments on the Interim Rule and the 
Amended Interim Rule
    The FDIC invited general comments on all aspects of the Interim 
Rule and sought comments from the public for suggestions as to its 
implementation. In addition, the FDIC raised specific questions 
regarding the possibility of more expeditious processing of claims 
under the Debt Guarantee Program: Whether coverage for certain NOW 
accounts should be provided under the Transaction Account Guarantee 
Program; whether the disclosures required in the Interim Rule were 
beneficial in light of the potential costs in providing them; and the 
general administrative cost of the Interim Rule. In the Amended Interim 
Rule, the FDIC sought comment on three additional areas of interest: 
Suggested rates for short-term borrowings versus longer term 
borrowings; the possibility of combining holding company and bank debt 
(without exceeding their combined guaranteed debt limit); and 
suggestions for establishing a guaranteed debt limit for those 
institutions that had no senior unsecured debt outstanding as of 
September 30, 2008.
    Some of the comments received by the FDIC were equally applicable 
to both components of the TLG Program; others related specifically to 
either the Transaction Account Guarantee Program or the Debt Guarantee 
Program. A summary of the collective comments received in response to 
the Interim Rule and the Amended Interim Rule (as well as the FDIC's 
response to those comments) follows.

General Comments Regarding the TLG Program

    The FDIC received a number of comments that expressed general 
support of the FDIC's efforts to establish and implement the TLG 
Program. These commenters stated their belief that the TLG Program 
could help ease the strains in the credit markets, improve the access 
of financial institutions to liquidity, mitigate systemic risks in the 
financial system, and preserve public confidence in banks and other 
financial institutions.
    However, the FDIC also received some comments from community 
bankers stating that, while they appreciate the efforts being made to 
strengthen confidence in the banking system, they have not been 
experiencing capital or liquidity problems and, therefore, do not see 
the need for the TLG Program and, in fact, consider the TLG Program's 
potential to raise their cost of funds detrimental. In particular, the 
commenters raised the possibility that if they choose to opt-out of the 
Debt Guarantee Program they may have to pay more for correspondent 
banking services and may be stigmatized. As discussed below, the Final 
Rule excludes short-term senior unsecured

[[Page 72250]]

debt with a maturity of thirty days or less from the Debt Guarantee 
Program, which should ease the concerns of these commenters, since the 
comments raised questions primarily about overnight funding.
    One commenter observed that the Debt Guarantee Program may pose 
adverse selection risks where only weak institutions participate in the 
Debt Guarantee Program and strong institutions opt-out. While 
acknowledging the concerns raised by the commenter, the FDIC is 
confident that the benefits of the program, coupled with the revisions 
made to the Final Rule in response to industry comments will ensure 
that the majority of strong institutions will participate. In addition, 
working with the other primary federal regulators, the FDIC's 
supervisory staff will also closely monitor and limit, as appropriate, 
use by weaker institutions.
    A banking trade association emphasized the FDIC's need to retain 
flexibility to adjust the program and quickly correct problems. In the 
commenter's view, this flexibility would include both the flexibility 
to change the elements of the guarantee (including debt covered, 
pricing, and terms) and the ability of banks to participate or not in 
the program. The FDIC believes that the changes it is making in the 
rule and the discretion it retains in implementing the rule are the 
most appropriate means of addressing these concerns.
Competitive Issues and Potential Effects on Other Entities
    A number of commenters indicated that differences between the 
FDIC's Debt Guarantee Program and the debt guarantee programs in other 
countries could create competitive disparities. These commenters 
specifically recommended that the FDIC emphasize that its guarantee is 
backed by the full faith and credit of the federal government and that 
the FDIC revise the program to guarantee timely payment of principal 
and interest. The FDIC agrees with these comments and has revised the 
nature of the guarantee to cover timely payment of principal and 
interest as discussed below. Also, the disclosure required by the Final 
Rule for debt issued under the Debt Guarantee Program includes the 
statement that the debt is backed by the full faith and credit of the 
United States.
    A comment from one of the regulators of a Government Sponsored 
Enterprise (GSE) and an insurer of that GSE's bonds warned of potential 
disruptions, dislocations, and investor confusion in the debt markets 
due to the FDIC's debt guarantee that may disadvantage the GSEs. These 
two commenters neither supported nor opposed the Amended Interim Rule 
and noted that these potential unintended consequences are mitigated by 
the fact that the program is temporary. The FDIC agrees that this 
temporary program should not significantly affect the GSE debt markets. 
In addition, this program has the potential to lower the funding costs 
of most of the major mortgage originators, which may have a beneficial 
impact on mortgage availability and costs.
    One commenter noted that the Debt Guarantee Program will reduce 
secured borrowing and harm the earnings of Federal Home Loan Banks, 
which are owned by insured institutions. In the FDIC's view, Federal 
Home Loan Banks function well under ordinary circumstances, when market 
failures have not prevented healthy institutions from borrowing on an 
unsecured basis. The Debt Guarantee Program is a time-limited program 
intended to restore normal functioning to the market; and, therefore, 
it should not materially affect the Federal Home Loan Banks.
Extending the Opt-Out Deadline
    The FDIC also received several comments requesting that the opt-out 
deadline established in the Interim Rule be extended until the Final 
Rule was announced to permit eligible entities sufficient time to 
review the Final Rule and make a more informed decision regarding their 
participation in the TLG Program. Recognizing these concerns, in its 
Amended Interim Rule, the FDIC extended the opt-out deadline from 
November 12, 2008 until December 5, 2008, and made corresponding 
changes to other dates affected by the revised opt-out deadline.
Systemic Risk Assessment
    A few commenters raised the issue of the systemic risk assessment. 
The Amended Interim Rule provides that, if the assessments for the TLG 
Program are insufficient to cover the expenses related to the program, 
an emergency special assessment will be made on all insured depository 
institutions. While acknowledging that section 13(c)(4)(G)(ii) of the 
FDI Act, 12 U.S.C. 1823(c)(4)(G)(ii), requires the FDIC to levy a 
systemic risk assessment against all insured depository institutions, 
the commenters suggested that such an assessment be levied against all 
entities that participate in the TLG Program, not against those insured 
depository institutions that opt-out. Another trade association 
commenter requested that the FDIC levy a special assessment to entities 
owned by holding companies with significant non-bank subsidiaries in 
proportion to program losses generated by such entities. Absent 
legislative changes, however, the FDIC has no authority to alter the 
statutory requirements of the systemic risk assessment provision and 
must levy the assessment on all insured depository institutions (and 
only insured depository institutions), in accordance with the statute.
    The Board of Governors of the Federal Reserve System (Federal 
Reserve Board), as primary supervisor of bank holding companies (BHCs), 
strongly supports including BHCs in the TLG Program. Indeed, Federal 
Reserve Board staff has warned that not including BHCs ``would pose 
significant risks to individual insured depository institutions (IDIs) 
and the banking system as a whole.'' \3\ The rationale for guaranteeing 
holding company debt is to promote liquidity in the banking industry, 
since bank and thrift holding companies, rather than banks and thrifts 
themselves, issue most senior unsecured debt in many holding company 
structures. The holding companies, in turn, provide liquidity to their 
bank and thrift subsidiaries. The FDIC expects its Debt Guarantee 
Program to yield more revenue than costs. Further, the FDIC is 
modifying the fee structure for the Debt Guarantee Program to impose 
modestly higher fees on holding companies whose insured depository 
institutions present less than 50 percent of consolidated assets. 
Guaranteeing BHC debt is not without risks to the Deposit Insurance 
Fund (DIF), though the Federal Reserve Board has provided strong 
assurances that they will use all supervisory powers available to them 
to minimize these risks.\4\ The Office of Comptroller of the Currency 
and the Office of Thrift Supervision have made similar assurances. For 
these reasons and based on its own analysis of the risks presented, the 
FDIC believes the risks are acceptable and anticipates that revenue 
collected for the guarantee under the Debt Guarantee Program will be 
sufficient to cover the costs. Any surplus funds will be put in the DIF 
to ease pressure on premiums paid by depository institutions.
---------------------------------------------------------------------------

    \3\ Memorandum dated November 19, 2008, to FDIC Chairman Sheila 
C. Bair from Federal Reserve Board Staff at page 1.
    \4\ Letter dated November 19, 2008, to FDIC Chairman Sheila C. 
Bair from Chairman of the Board of Governors of the Federal Reserve 
System Ben S. Bernanke.
---------------------------------------------------------------------------

Cost and Benefit
    In the Interim Rule, the FDIC asked whether the collection of 
information was necessary for the proper performance of the FDIC's 
duties and

[[Page 72251]]

whether the information sought had practical utility. Further, the FDIC 
asked whether its burden estimates were accurate and whether the 
assumptions that supported its burden calculation were valid. 
Commenters were asked to address ways to enhance the quality and 
clarity of the information collected and to provide suggestions for 
minimizing the burden of affected parties in providing the requested 
information to the FDIC. Although the FDIC received no comments that 
were specifically responsive to these questions, the FDIC continues to 
believe that the TLG Program will enhance financial stability and will 
preserve confidence in the banking system without placing undue 
restrictions on participating entities or those who may someday seek 
payment under the Program's debt or transaction account guarantees, 
particularly in light of the changes made to the claims and payment 
processes in the Final Rule.

Comments Related to the Scope of the Debt Guarantee Program

    In the Amended Interim Rule, the FDIC sought comment as to whether 
the FDIC should charge different guarantee fees for federal funds or 
other short-term borrowings as compared to longer term debt 
instruments. In addition, the FDIC sought suggestions for establishing 
the differentiating criteria for the types of borrowings and for the 
actual rates that should be paid for each type. The FDIC received a 
substantial number of comments regarding these issues and regarding 
definitions applicable to the Debt Guarantee Program.
Federal Funds and Other Short-Term Instruments
    The FDIC received a large number of comments urging either the 
exclusion of federal funds and similar overnight instruments from the 
Debt Guarantee Program or the reduction in the annualized 75 basis 
point guarantee fee for overnight borrowings from annualized 75 basis 
points to 10 or 25 basis points. Several commenters suggested that the 
Debt Guarantee Program should cover federal funds on an unlimited 
basis, but at a significantly lower fee.
    The commenters indicated that the level of fees called for in the 
Amended Interim Rule is prohibitively expensive for short-term maturity 
instruments, such as federal funds, given the low prevailing effective 
rate for federal funds. These commenters felt that the proposed fee 
structure could lead many eligible institutions that would otherwise 
participate in the program to opt-out of the Debt Guarantee Program 
altogether or to shift from federal funds to secured short-term 
borrowings from sources such as the Federal Reserve discount window, 
the Federal Reserve's Term Auction Facility (TAF), or Federal Home Loan 
Banks. Other commenters and market participants have also expressed the 
view that various federal programs have contributed to improved 
liquidity in the short-term funding market and, therefore, the FDIC's 
guarantee of debt with very short-term maturities, such as overnight 
federal funds, is no longer necessary or desirable in light of the 
costs that would be associated with such guarantees.
    Based on these comments, in the Final Rule, the FDIC has revised 
the definition of guaranteed senior unsecured debt to exclude debt with 
a stated maturity of thirty days or less. The FDIC acknowledges that 
the 75 basis point guarantee fee may be too high for short-term money 
market instruments such as overnight federal funds or Eurodollars in 
relation to prevailing overnight interest rates. Furthermore, recent 
market data from the Federal Reserve Board and market participants 
suggest less significant disruption in short-term money markets, 
particularly as the Federal Reserve Board lowers short-term interest 
rates and actively provides liquidity. Many entities that are eligible 
to participate in the TLG Program have, in fact, shortened their 
funding maturities considerably as they continue to experience 
difficulties obtaining longer-term unsecured debt, with much of the 
recently issued debt either being secured or having a maturity of 30 
days or less. The FDIC believes that the Debt Guarantee Program should 
help institutions to obtain stable, longer-term sources of funding 
where liquidity is currently most lacking.
Fees
    As discussed above, several commenters stated that fees for short-
term instruments were too high. One trade association urged the FDIC to 
adopt a risk-based pricing model for the Debt Guarantee Program with 
guarantee fees ranging from under 10 basis points to no more than 50 
basis points depending on a bank's CAMELS rating and the term of the 
borrowings and that small bank and thrift holding companies should be 
assessed a fee based on the CAMELS ratings for the companies' financial 
institution subsidiaries. Other commenters suggested that the FDIC 
develop a sliding scale for fees based on the maturity of the 
instruments, especially for very short-term instruments like federal 
funds. As discussed in more detail below, the Final Rule adopts a 
sliding rate scale based on an instrument's maturity. Rates for shorter 
term debt (180 days or less, excluding overnight debt) are less than 75 
basis points; rates for longer term debt (365 days or greater) are 
slightly higher.
    A banking trade association urged the FDIC to exclude holding 
companies with significant non-bank subsidiaries from the Debt 
Guarantee Program on the grounds that community banks and other insured 
depository institutions would be forced to pay for losses on these 
guarantees through a special assessment on FDIC-insured institutions 
only. In the alternative, the association asked the FDIC to develop a 
methodology for these entities to pay a special assessment for their 
proportional share of any Program losses. The FDIC believes that it is 
essential to allow some holding companies to participate in the Debt 
Guarantee Program to provide liquidity to the inter-bank lending market 
and promote stability in the unsecured funding market. As discussed 
earlier, the FDIC does not have the statutory authority to levy a 
special assessment on non-depository institutions. However, the FDIC 
has decided to increase the Debt Guarantee Program fees by 10 basis 
points for holding companies where affiliated insured depository 
institutions constitute less than half of holding company consolidated 
assets.
    The Interim Rule required each participating entity in the Debt 
Guarantee Program to take necessary action to allow the FDIC to debit 
its assessments from the entity's designated deposit account as 
provided for in section 327(a)(2). The Interim Rule required funds to 
be available in the designated account for direct debit by the FDIC on 
the first business day after the invoice is posted on FDICconnect. One 
commenter asked how a holding company could minimize the risk of 
violating section 23A of the Federal Reserve Act, assuming that the 
holding company intended to deposit funds in its affiliated insured 
depository institution's ACH account for the FDIC's direct debit of 
both the holding company's assessment and the bank's assessment. To 
avoid violations of 23A of the Federal Reserve Act, the FDIC expects 
participating holding companies to fund its affiliated insured 
depository institution's ACH account in advance of the FDIC's direct 
debit of the assessments.
Requirement of a Written Agreement
    The Amended Interim Rule defines senior unsecured debt in part as 
unsecured borrowing that is evidenced by a written agreement. The FDIC

[[Page 72252]]

received several comments that urged the FDIC to make an exception for 
this requirement for federal funds. Several commenters also noted that 
certain types of short-term debt, such as overnight transactions or 
transactions with maturities of one week or less, typically are not 
evidenced by a written agreement. As noted above, in the Final Rule the 
FDIC has excluded obligations with a stated maturity of thirty days or 
less from the definition of senior unsecured debt. The FDIC anticipates 
that this action will satisfy those with concerns regarding written 
agreements applicable to federal funds and other short-term debt. Also, 
the FDIC has clarified in the Final Rule that trade confirmations are a 
sufficient form of written agreement to establish eligibility as a 
senior unsecured debt for purposes of the Debt Guarantee Program.
Full Faith and Credit
    Several commenters sought confirmation that the guarantees provided 
by the FDIC under the Debt Guarantee Program were backed by the full 
faith and credit of the United States. The FDIC has concluded that the 
FDIC's guarantee of qualifying debt under the Debt Guarantee Program is 
subject to the full faith and credit of the United States pursuant to 
section 15(d) of the FDI Act, 12 U.S.C. 1825(d). Under both the Amended 
Interim Rule and the Final Rule adopted by the FDIC, the principal 
amount and term to or date of maturity of conforming debt instruments--
citing the FDIC guarantee on their face--will effectively be 
incorporated by reference into the FDIC's debt guarantee, and the 
provisions of section 15(d) are therefore satisfied.
Establishing Guarantee Cap for Institutions With No or Limited Senior 
Unsecured Debt
    The Amended Interim Rule established September 30, 2008, as the 
threshold date by which the limit for eligible debt coverage for a 
participating entity is calculated. On that date, if a participating 
entity has no senior unsecured debt, it can still seek to have some 
amount of debt covered by the Debt Guarantee Program in an amount to be 
determined by the FDIC on a case-by-case basis following discussion 
with the appropriate Federal banking agency. In the Amended Interim 
Rule, the FDIC asked whether it should establish an alternative method 
for establishing a guarantee cap for such institutions and, if so, what 
the alternative method should be.
    A number of commenters expressed concern that the Debt Guarantee 
Program could have an unintended negative impact on eligible 
institutions with little or no federal funds purchased and outstanding 
on the threshold date of September 30, 2008. In particular, these 
commenters expressed concern that liquidity available on an unsecured 
basis prior to establishment of the Debt Guarantee Program would no 
longer be available to them as lenders and would give preference to 
guaranteed borrowers. Several commenters recommended that the FDIC 
remedy these concerns by defining the cap as the greater of (1) 125% of 
senior unsecured debt outstanding on September 30, 2008 and maturing on 
or before June 30, 2009, or (2) either 100% of the federal funds 
accommodations lines available to the institution as of September 30, 
2008, or a percentage of total assets or total liabilities outstanding 
on September 30, 2008. Others suggested that the guarantee cap should 
be calculated based on the highest amount of senior unsecured debt 
outstanding during 2008, the average amount of senior unsecured debt 
outstanding during 2008, the average amount of senior unsecured debt 
outstanding during the third quarter of 2008, varying percentages of 
total assets and total liabilities as of September 30, 2008, and fixed 
dollar amounts.
    The FDIC has established an alternative method for establishing a 
guarantee cap for insured depository institutions that either had no 
senior unsecured debt outstanding or only had federal funds purchased 
as of September 30, 2008, but that would like to participate in the 
Debt Guarantee Program. The FDIC has determined that the debt guarantee 
limit for such an eligible insured depository institution will be two 
percent of the participating entity's consolidated total liabilities as 
of September 30, 2008, as set forth in the Final Rule.
    For institutions that had senior unsecured debt other than federal 
funds outstanding as of the threshold date of September 30, 2008, the 
debt guarantee limit is determined using a definition of senior 
unsecured debt inclusive of debt obligations with maturities of thirty 
days or less that also meet the remaining requirements of Sec.  
370.2(e). Such obligations are excluded from the definition of senior 
unsecured debt after December 5, 2008 in the Final Rule.
Clarification of Eligible Instruments
    Several commenters asked the FDIC to clarify whether certain 
instruments are covered within the definition of senior unsecured debt 
contained in the Amended Interim Rule. Specifically, these commenters 
asked whether senior unsecured debt includes inflation-linked 
securities with a fixed principal amount, index-linked principal 
protected securities, putable bonds, callable bonds, zero-coupon bonds, 
extendible securities, step-up coupons and retail debt securities. A 
trade association urged the FDIC to include principal-protected 
structured notes in the definition of eligible senior unsecured debt. 
This commenter argues that such products are analogous to indexed 
certificates of deposit that qualify for deposit insurance coverage.
    The purpose of the Debt Guarantee Program is not to promote 
innovative, exotic or complex funding structures, but to provide 
liquidity to the inter-bank lending market. According to the Amended 
Interim Rule, senior unsecured debt specifically excludes any debt 
instruments that are either derivatives or derivative-linked products. 
Most of the instruments mentioned by the commenters are derivative-
linked products, structured notes\5\, or instruments with embedded 
options. The FDIC continues to believe that such instruments expose the 
FDIC to undue risk without materially enhancing liquidity in the inter-
bank lending market. The Final Rule further clarifies the definition of 
senior unsecured debt to exclude any debts that are paired or bundled 
with other securities, regardless of whether the target investor is 
institutional or retail, structured notes, securities with embedded 
options, retail debt securities, and obligations used for trade credit 
(e.g., letters of credit or banker's acceptances).
---------------------------------------------------------------------------

    \5\ As defined in the Call Report instructions for schedule RC-
B, ``structured notes'' includes, but are not limited to (1) 
floating rate debt securities whose payment of interest is based 
upon a single variable index of a Constant Maturity Treasury (CMT) 
rate or a Cost of Funds Index (COFI) or changes in the Consumer 
Price Index (CPI), (2) step-up bonds, (3) index amortizing notes, 
(4) dual index notes, (5) deleveraged bonds, (6) range bonds, and 
(7) inverse floaters.
---------------------------------------------------------------------------

    One commenter asked for clarification regarding whether preferred 
debt issued under the TARP CPP would be subject to guarantee fees under 
the TLG Program. Another commenter suggested that the FDIC should 
guarantee structured products or convertible debt securities used to 
redeem preferred stock issued under the TARP CPP. Senior preferred 
stock issued under the TARP CPP is considered equity, and does not meet 
the definition of senior unsecured debt under the Final Rule. 
Furthermore, as noted in the TARP CCP's term sheet, senior preferred 
stock issued under the TARP CPP can only be redeemed with the proceeds 
from the sale of Tier 1 qualifying perpetual

[[Page 72253]]

preferred stock or common stock for cash.\6\
---------------------------------------------------------------------------

    \6\ http://www.ustreas.gov/press/releases/reports/termsheet.pdf.
---------------------------------------------------------------------------

Negotiable Certificates of Deposit (CDs), Term Eurodollars, Brokered 
Deposits
    Several commenters suggested including all negotiable (wholesale) 
certificates of deposit and term Eurodollars owed to corporate lenders 
as eligible guaranteed instruments under the Debt Guarantee Program. 
The commenters argue that such instruments, whether they are sold to a 
bank or a non-bank, are vital sources of liquidity to the industry. 
Another commenter suggested including brokered deposits as an essential 
eligible instrument. The FDIC believes that extending the guarantee to 
inter-bank certificates of deposits, Eurodollar deposits and 
international banking facility (IBF) deposits owed to a bank are 
consistent with the objective of promoting liquidity in the inter-bank 
lending market. The FDIC does not believe it is necessary to extend the 
guarantee further to deposit instruments sold to non-bank entities 
since negotiable certificates of deposit and brokered deposits are 
currently insured up to $250,000.
Revolving Credit Agreements
    One commenter argues that the guarantee should cover 364-day 
revolving credit agreements that are entered into and fully drawn down 
at least once before June 30, 2009, should be included in the 
definition of senior unsecured debt under the Debt Guarantee Program 
and that the FDIC's guarantee of such agreements should remain in place 
through June 30, 2012. The commenter stated that lending banks have 
recently been unwilling to enter into credit agreements on an unsecured 
basis for longer than 364 days and that an FDIC guarantee of such 
agreements would alleviate this issue.
    Although the FDIC understands the concerns raised by the commenter, 
the FDIC does not believe that extending the guarantee to cover 
revolving credit lines, where the line is often drawn on infrequently 
and often on a short-term basis, is the most effective way to encourage 
inter-bank lending, which is the primary objective of the Debt 
Guarantee Program. The FDIC also believes that revolving credit lines 
are not consistent with certain eligibility requirements applied to 
other types of eligible senior unsecured debts as defined in Sec.  
370.2(e). Specifically, since the total outstanding amount of such 
lines can fluctuate on a daily basis, revolving credit agreements are 
not consistent with the requirement in Sec.  370.2(e) that senior 
unsecured debts have a fixed principal amount. Also, the inclusion of 
364-day revolving credit agreements appears inconsistent with the FDIC 
decision to exclude short-term funding instruments from the definition 
of senior unsecured debt, since amounts drawn under such credit 
facilities may be outstanding for significantly shorter periods of time 
than the stated 364-day maturity of the credit facilities (that is, 
thirty days or less). The FDIC believes that the Final Rule provides 
sufficient support to bank lending markets across a broad spectrum of 
instruments and maturity structures and affords eligible institutions 
with a large range of funding alternatives.
    The FDIC has also received several comments that suggest that the 
FDIC guarantee under the Debt Guarantee Program should cover lines of 
credit extended to bank holding companies, either unsecured or secured 
by bank stock, to provide additional liquidity and capital to the 
subsidiary bank. One commenter argued that at the time of default, such 
debts, even if secured by bank stock, are effectively unsecured since, 
generally, no market would exist for the collateral or the collateral 
would have no value, making lines of credit secured by bank stock 
essentially unsecured. The FDIC guarantee does not cover any portion of 
secured debt issuances.
    Under the Amended Interim Rule and the Final Rule, the guarantee 
does not extend to debts issued to affiliates, which includes an 
insured depository institution's parent company, or any secured debt. 
The FDIC does not believe that providing guarantees to debts issued to 
affiliates is an effective means of promoting inter-bank lending. The 
FDIC notes that many other types of collateral, in addition to bank 
stock, may have limited marketability or little to no value upon 
default.
Long-Term Debt Instruments
    Some commenters asked the FDIC to consider guaranteeing senior 
unsecured debt for up to five, seven, or ten years. The commenters 
noted that the typical investor base of debt with maturities up to 
three years are not actively purchasing term notes issued from 
financial institutions and that ``real money investors'' such as 
pension funds, insurance companies and traditional money managers are 
more active in the longer-term debt market. However, a comment from a 
GSE warned that the Debt Guarantee Program may have the unintended 
effect of eroding confidence in senior unsecured debt of financial 
institutions, including Farm Credit System banks that do not qualify 
for the guarantee. The commenter urged the FDIC not to extend either 
the issuance deadline beyond June 30, 2009 or the guarantee termination 
date beyond June 30, 2012. The commenter also asked that the FDIC 
monitor the effects of the TLG Program on financial institutions that 
are not covered by the program.
    Under the Final Rule, as under the Amended Interim Rule, the FDIC 
will guarantee all senior unsecured debt issued by a participating 
institution that meets the definition in Sec.  370.2(e) until the 
maturity date or June 30, 2012, whichever comes first. The FDIC 
believes that various federal programs, including the TLG program, 
should help improve liquidity in the inter-bank lending market and the 
unsecured term debt market prior to the expiration of the guarantee 
program. The intent of the Debt Guarantee Program is to establish a 
temporary guarantee of senior unsecured debt to help improve liquidity 
to inter-bank and unsecured term debt markets. The FDIC does not 
believe it is generally necessary to extend guarantees to longer term 
debts to achieve this objective.
Coverage of Sweeps
    Several comments urged the FDIC to modify the definition of senior 
unsecured debt to exclude all sweep products, regardless of form, e.g., 
federal funds, commercial paper or inter-bank deposits. Another 
commenter also urged the FDIC to modify the definition to exclude funds 
swept from accounts of public sector clients, banks, and other 
financial institutions. In addition, the commenter urged the FDIC to 
exclude similar sweeps into IBF accounts. The commenters argued that 
sweep products, regardless of form or type of originating account, are 
passive investments used for cash management and that the FDIC 
guarantee of these products would not increase liquidity. Rather, the 
commenters argued that the effect of the annualized 75 basis point 
guarantee fee would encourage investors to migrate to other products.
    The FDIC agrees that the guarantee fee described in the Amended 
Interim Rule would be onerous for such products. In addition, the FDIC 
does not believe the guarantee of such products serves the intended 
purpose of improving liquidity in the inter-bank lending market. The 
Final Rule revises the definition of senior unsecured debt to exclude 
any obligation with a maturity of 30 days or less, including all 
overnight sweep products. This revised definition would

[[Page 72254]]

exclude all (or almost all) sweep products.
Debt Denominated in Foreign Currency
    Under the Amended Interim Rule, senior unsecured debt eligible for 
the guarantee may be denominated in foreign currency. A commenter asked 
whether the debt denominated in foreign currency includes foreign 
denominated debt issuances which are settled in U.S. dollars. The Final 
Rule clarifies that, except for deposits, senior unsecured debt may be 
denominated in a foreign currency as long as the other eligibility 
requirements set forth in the definition are met. Debt issued in 
foreign currency, but settled in U.S dollars, may have embedded foreign 
exchange forwards or swap contracts that create an added dimension of 
risk similar to structured notes. Accordingly, the Final Rule requires 
debt to be settled in the same currency in which it is denominated at 
issuance to be considered an eligible senior unsecured debt under the 
Debt Guarantee Program.
Deposits at a Foreign Branch of the Bank
    The definition of senior unsecured debt contained in the Amended 
Interim Rule includes Eurodollar deposits standing to the credit of a 
bank. A commenter asked for clarification as to whether the guarantee 
extends to a deposit account of another bank at any foreign branch \7\ 
of the bank, including accounts denominated in currencies other than 
U.S. dollars since the Amended Interim Rule did not expressly address 
those deposits.
---------------------------------------------------------------------------

    \7\ Section 3(o) of the FDI Act defines ``foreign bank'' as 
``any office or place of business located outside the United States, 
its territories, Puerto Rico, Guam, American Samoa, the Trust 
Territory of the Pacific Islands, or the Virgin Islands, at which 
banking operations are conducted.''
---------------------------------------------------------------------------

    The Final Rule clarifies that senior unsecured debt includes U.S. 
dollar denominated inter-bank deposits with a stated maturity of 
greater than 30 days, certificates of deposit (other than negotiable 
certificates of deposit) owed to an insured depository institution or a 
foreign bank, U.S. dollar denominated deposits in an IBF of an insured 
depository institution that are owed to an insured depository 
institution or a foreign bank, and U.S. dollar denominated deposits on 
the books and records of foreign branches of U.S. depository 
institutions that are owed to an insured depository institution or a 
foreign bank. The term ``foreign bank'' does not include a foreign 
central bank or other similar non-U.S. government entity that performs 
central bank functions or a quasi-governmental international financial 
institution, such as the International Monetary Fund (IMF) or the World 
Bank. Under the Final Rule, senior unsecured debt does not include 
deposits denominated in a foreign currency and deposits at foreign 
branches of U.S. depository institutions other than inter-bank deposits 
that are denominated in U.S. dollars. Also, under the Final Rule, the 
phrase ``owed to an insured depository institution or a foreign bank'' 
means owed to an insured depository institution or a foreign bank 
solely in its own capacity and not as agent.
Definition of a Foreign Bank
    A commenter also asked whether a ``depository institution regulated 
by a foreign bank agency'' includes central banks, other similar non-
U.S. government entities that perform central bank functions, and 
international financial institutions such as the IMF. For the purposes 
of both the Amended Interim Rule and the Final Rule, the term ``foreign 
bank'' in the phrase ``owed to an insured depository institution, an 
insured credit union or a foreign bank'' means a depository 
institution, whether insured by the FDIC in the U.S. or regulated by a 
foreign bank supervisory agency. Central banks or international 
financial institutions such as IMF do not meet that definition.
    One commenter questioned why under Sec.  370.2(e) of the Amended 
Interim Rule ``senior unsecured debt'' is defined as including U.S. 
dollar denominated certificates of deposit standing to the credit of 
(owed to) an insured institution or a foreign bank but that a 
certificate of deposit owed to a credit union was not covered. The 
commenter argued that credit unions should be given the same 
consideration as that given to foreign banks. The FDIC agrees that 
credit unions insured by the National Credit Union Administration 
(NCUA) should be treated similarly and has provided for this in the 
Final Rule.
Definition of an Insured Depository Institution
    A commenter requested explanation for the exclusion of an insured 
branch of a foreign bank from the definition of Insured Depository 
Institution for the purposes of the Debt Guarantee Program. The 
commenter expressed concern that excluding insured branches placed them 
at a potentially serious competitive disadvantage relative to other 
insured institutions. The FDIC intended for the Debt Guarantee Program 
to be available to insured depository institutions and other eligible 
entities that are headquartered in the United States. The FDIC did not 
intend to guarantee debt issued by foreign entities, including domestic 
branches of foreign banks or foreign subsidiaries of eligible U.S. 
entities. Foreign entities may be eligible for similar debt guarantee 
programs available in the countries in which they are domiciled.
Eligibility of a Debt Without a CUSIP Identifier
    One commenter recommended that only debt that can be issued with an 
identifier from the Committee on Uniform Security Identification 
Procedures (CUSIP) should be eligible under the Debt Guarantee Program. 
This commenter argued that such a requirement would reduce potential 
market confusion about when an institution has exceeded the debt 
guarantee limit.
    With the modifications made by the Final Rule, the FDIC believes 
that its action in excluding short-term maturity funding, such as 
overnight federal funds, from eligibility will substantially reduce the 
volume of transactions covered by the Debt Guarantee Program that are 
not issued with CUSIP identifiers. Nevertheless, the FDIC does not 
desire to discourage issuance of other types of eligible unsecured debt 
that may not be issued with CUSIP identifiers. The FDIC believes that 
the disclosures required under Sec.  370.5(h)(2) of the Final Rule will 
offset any potential for market confusion about which debt issuances 
are guaranteed.
Calculating Debt Limits
    A few commenters requested that the FDIC clarify whether the 
maximum amount of debt that can be issued under the Debt Guarantee 
Program is based on the aggregate amount issued or on the amount 
outstanding at a particular time. The FDIC calculates the maximum 
amount of debt based on the amount of debt outstanding at a given time, 
as defined in Sec.  370.3(b)(1), not on the cumulative amount of debt 
issued under the Debt Guarantee Program.
    Several commenters requested clarification about the calculation of 
the 125 percent debt guarantee limit. In particular, commenters asked 
whether the baseline measure was senior unsecured debt outstanding at 
the close of business on September 30, 2008, or the highest amount 
outstanding throughout September 30, 2008. The Final Rule clarifies 
that the measure is based on senior unsecured debt outstanding at the 
close of business on September 30, 2008.
    The FDIC has the authority to increase or decrease the cap on a 
case-by-case basis. In considering requests to increase the cap, the 
FDIC will evaluate

[[Page 72255]]

the extent to which the applicant demonstrates the funding will be used 
to provide or reduce the costs of safe and sound lending in areas 
currently showing credit contraction (e.g., mortgage lending, consumer 
credit and small business lending).
    As discussed earlier, senior unsecured debt, except for deposits, 
may be denominated in a foreign currency as long as the other 
eligibility requirements are met. For purposes of determining 
compliance with an institution's guarantee limit, the Final Rule 
provides that debt issued in a foreign currency will be converted into 
U.S. dollars using the exchange rate in effect on the settlement date 
(that is, the date that the debt is funded).

Issuance of Non-Guaranteed Debt

    Under the Amended Interim Rule, a participating entity may only 
issue non-guaranteed debt under one of two circumstances: (1) Once an 
entity has reached the debt guarantee limit, it can issue debt that is 
not guaranteed by the FDIC, but the entity must specifically disclose 
that the debt is not guaranteed; and (2) if a participating entity 
elects the option and pays the required fee, it may issue non-
guaranteed senior unsecured debt with a maturity date beyond June 30, 
2012, without regard to the debt guarantee limit. Several commenters 
recommended that the FDIC allow participating entities the flexibility 
to issue senior unsecured debt (excepting, in the view of some 
commenters, non-swept federal funds) that is not guaranteed by the 
FDIC, regardless of maturity or whether the entity has reached the debt 
guarantee limit. Commenters argued, among other things, that: (1) The 
market will understand that the decision whether to issue guaranteed or 
non-guaranteed debt will depend on costs and an investor's yield 
requirements and not necessarily on the perceived strength or weakness 
of the issuer; (2) the debt guarantee program in the United Kingdom 
(U.K.) allows institutions the flexibility to choose whether to issue 
guaranteed or non-guaranteed debt; (3) the market will continue to 
differentiate the debt of participating entities through prices and 
credit spreads on debt issued before October 14, 2008, debt guaranteed 
by participating entities and non-guaranteed debt of affiliates of 
participating entities, and debt issued in excess of the debt guarantee 
limit; (4) allowing institutions the flexibility to choose whether to 
issue guaranteed or non-guaranteed debt will keep an institution's 
overall cost of funds down while weaker institutions will have to pay 
more for unsecured funding, thereby maintaining market discipline; (5) 
institutions will likely reach their debt guarantee limit quickly and 
will find themselves in the same position that they were in before 
implementation of the Debt Guarantee Program, since they will then have 
to issue non-guaranteed debt, while the FDIC's risk will have increased 
by the amount of the guaranteed debt; (6) systemic risk will increase 
because healthy banks will effectively be guaranteeing, not only 
insured deposits at weak banks, but their unsecured debt as well; (7) 
the restriction on issuing non-guaranteed debt may force healthy banks 
out of the Debt Guarantee Program, weakening the program itself and 
putting the banks that opt-out of the program at a competitive 
disadvantage compared to weaker banks that have guaranteed debt; (8) 
allowing institutions the flexibility to choose whether to issue 
guaranteed or non-guaranteed debt would act as a mechanism both to 
check the pricing of the guarantee as well as to provide for an exit 
strategy as the financial crisis abates and the value of the guarantee 
disappears; and (9) capital injections under the Troubled Asset Relief 
Program (TARP) and improvements in market conditions have made the Debt 
Guarantee Program as originally contemplated unnecessary unless more 
flexibility is allowed to issue non-guaranteed debt. In particular, 
some short-term debt instruments, such as fed funds or commercial 
paper, may not need a guarantee given their shorter maturity and 
current degree of market functioning.
    Despite these arguments, the FDIC has decided, for several reasons, 
not to alter the rules governing an entity's authority to issue non-
guaranteed senior unsecured debt. First, and most importantly, limiting 
a participating entity's ability to issue non-guaranteed debt reduces 
the risk of adverse selection--the risk that the participating entity 
will issue only the riskiest debt with the guarantee. Second, on 
balance, the Debt Guarantee Program should reduce systemic risk by 
restoring liquidity to otherwise healthy institutions. Third, 
particularly with the revised fee schedule, the FDIC believes that the 
benefits of the Debt Guarantee Program are such that most healthy 
institutions will elect to remain in the program. Fourth, the TLG 
Program was created as a complement to the TARP. These two programs are 
partly responsible for any improvements that have occurred in the 
market. However, it is the FDIC's observation that many insured 
institutions' ability to borrow for a longer term is still impaired. 
Fifth, the Debt Guarantee Program will allow more institutions to 
borrow when they could not otherwise. Sixth, limiting a participating 
entity's ability to issue non-guaranteed debt reduces the possibility 
of confusion over whether debt is, or is not, guaranteed. Seventh, the 
U.K. debt guarantee program is different in many of its essential 
features from the TLG Program, including its scope, its pricing, and 
the number of entities whose debt is covered (i.e., eight versus 
roughly 15,000); therefore, its features are useful to understand, but 
do not necessarily provide a compelling analogy. Eighth, while the FDIC 
acknowledges that the Debt Guarantee Program may give some benefits to 
weaker institutions--an inevitable result of any guarantee program--it 
will give benefits to many stronger institutions, as well, that have 
been unable to borrow longer term because of market dislocations. 
Moreover, bank supervision should ensure that weaker institutions are 
not able to issue unwarranted amounts of guaranteed senior unsecured 
debt.
    While the FDIC has not altered the rules governing an entity's 
authority to issue non-guaranteed senior unsecured debt, the Final Rule 
revises the definition of senior unsecured debt to exclude any 
obligation with a stated maturity of thirty days or less, as discussed 
above.
Risk Weights for Capital Purposes
    Several commenters suggested lowering risk weights on FDIC-
guaranteed investments for risk-weighted asset and capital purposes. 
Some indicated that, since the guarantee is presumed to be backed by 
the full faith and credit of the United States, a zero risk weight 
should be considered as is the case with other full U.S. government 
guarantees and similar to practices in other jurisdictions--the U.K., 
Canada, Denmark, Ireland, France, Sweden and Australia. This being the 
case, the commenter indicated that a risk weighting of 20 percent could 
pose competitive disadvantages in terms of attracting capital.
    Taking into account the arguments noted, consistent with the 
current risk-based capital treatment for FDIC-insured deposits, the 
federal banking agencies (the FDIC, the Office of Thrift Supervision, 
the Office of the Comptroller of the Currency and the Board of 
Governors of the Federal Reserve System) have decided to apply a 20 
percent risk weight to debt that is

[[Page 72256]]

guaranteed by the FDIC.\8\ This risk-based capital treatment will apply 
to FDIC-guaranteed debt that is issued either by participating insured 
depository institutions or by other participating entities, including 
bank and thrift holding companies. The 20 percent weight will continue 
to apply to certificate of deposits (CD) investments owed to a bank 
that are included in the definition of senior unsecured debt contained 
in the Final Rule. The FDIC considers the 20 percent risk weighting to 
be appropriate given its consistency with the risk-based capital 
treatment for FDIC-insured deposits. Furthermore, reducing the risk 
weighting for FDIC-guaranteed debt would be inconsistent with the need 
for insured depository institutions to maintain strong capital bases. 
In addition, given the temporary nature of the TLG Program, the 20 
percent risk weighting is not anticipated to have a significant long-
term effect. In short, the Debt Guarantee Program is intended to 
minimize the foreseen risks of these instruments from a credit 
perspective, thereby encouraging their use and acceptance and promoting 
liquidity in the markets. FDIC-guaranteed debt is not intended to lower 
capital standards or free capital in the banking system.
---------------------------------------------------------------------------

    \8\ Appendix A to 12 CFR 325, ``Statement of Policy on Risk-
Based Capital.''
---------------------------------------------------------------------------

Combining Holding Company and Bank Guaranteed Debt
    The FDIC asked whether banks should be allowed to issue guaranteed 
debt in an amount equal to the bank's cap plus its holding 
company's(ies') cap as long as the total amount of guaranteed debt 
payable by the FDIC did not exceed the entities' combined cap. The FDIC 
sought comment on what procedures should be put into place to manage 
this process. (Although the question originally posed concerned banks 
and their holding companies, the question raised and the comments 
received apply equally to all insured depository institutions.) Several 
commenters responded to this question; all strongly supported allowing 
an insured depository institution to combine its debt guarantee limit 
with its parent holding company(ies) and to issue guaranteed debt up to 
their combined debt guarantee limit.
    In part as a result of these comments, the FDIC has made some 
changes in the Final Rule with respect to aggregating the debt limits 
for an insured depository institution and its parent holding 
company(ies). The Final Rule permits a participating insured depository 
institution to issue debt under its debt guarantee limit, as well as 
its holding company's debt guarantee limit or holding companies' 
combined debt limit, if appropriate. A participating insured depository 
institution may issue guaranteed debt in an amount equal to the 
institution's limit plus its holding company's(ies') limit, so long as 
the total guaranteed debt issued by the insured depository institution 
and its holding company(ies) does not exceed their combined debt 
guarantee limits. The holding company's(ies') debt guarantee limit will 
be reduced to the extent that its subsidiary insured depository 
institution increases its limit. Allowing consolidated entities to 
decide whether an insured depository institution should issue debt 
rather than its parent does not increase the FDIC's liability for the 
debt and provides participating entities additional flexibility to 
obtain funding.
Use of Guaranteed Debt Proceeds
    Several comments stated that the FDIC should provide specific 
guidance on whether participating entities may exchange guaranteed debt 
for outstanding non-guaranteed senior unsecured debt. Both the Amended 
Interim Rule and the Final Rule state that an issuer cannot issue and 
identify debt as guaranteed by the FDIC if the proceeds are used to 
prepay debt that is not FDIC-guaranteed.
Treatment of Debt Guarantee Limits and Opt-Out Status in the Event of a 
Merger
    One commenter noted that, due to the current turmoil in the 
financial system, a number of financial institutions are in the process 
of acquiring other financial institutions. The commenter further asked 
for clarification of how such a merger during the guarantee period 
would affect the surviving entity's debt guarantee limit. The FDIC 
intends to treat the debt guarantee limit of the surviving entity of a 
merger between eligible entities as equal to the combined debt 
guarantee limits of both entities calculated on a pro forma basis as of 
the close of business September 30, 2008, absent action by the FDIC 
after consultation with the surviving entity and its appropriate 
federal banking agency. If the acquiring entity previously opted-out of 
the Debt Guarantee Program, it will have a one-time option to opt-in by 
filing an application with the FDIC.

Comments Related to the Scope of the Transaction Account Guarantee 
Program

    Noting that negotiable order of withdrawal (NOW) accounts were 
excepted from the scope of the definition of ``noninterest-bearing 
transaction accounts'' in the Interim Rule, the FDIC specifically 
sought comment as to whether that definition should be broadened to 
include coverage for NOW accounts held by sole proprietorships, non-
profit religious, philanthropic, charitable organizations and the like, 
or governmental units for the deposit of public funds, assuming that 
the interest paid for such modifications would be de minimis. The 
public offered comments on these and other topics related to the scope 
of the Transaction Account Guarantee Program, as discussed below.
    The FDIC received approximately 500 comments on the Transaction 
Account Guarantee Program, including a large number of form letters. 
One commenter felt that the Transaction Account Guarantee Program 
simply was unwarranted because depositors were not interested in 
unlimited deposit insurance coverage and would be unwilling to pay for 
expanded coverage for transaction accounts. Most of the commenters 
argued that the full guarantee should be extended to certain interest-
bearing accounts, including the following: (1) Interest on Lawyers 
Trust Accounts (IOLTAs); (2) accounts owned by the government or 
accounts with public funds; and (3) negotiable order of withdrawal 
accounts (NOW accounts). Each of these types of accounts is discussed 
in turn below.
IOLTAs
    An IOLTA is an interest-bearing account maintained by a lawyer or 
law firm for clients. The interest from these accounts is not paid to 
the law firm or its clients, but rather is used to support law-related 
public service programs, such as providing legal aid to the poor.
    Over 500 of the comments received by the FDIC objected to the 
exclusion of IOLTAs from the Transaction Account Guarantee Program. 
Those who commented on IOLTAs included the American Bar Association, 
state bar associations, industry groups, and law firms. According to 
commenters, IOLTAs are clearing accounts serving the transactional 
needs of attorneys and are used for payment of court filing fees, 
escrow funds, retainers, and the like. Generally, commenters 
recommended that the FDIC either construe IOLTAs as noninterest-bearing 
transaction accounts eligible for coverage under the Transaction 
Account Guarantee Program, or that the FDIC grant an exception to 
explicitly provide coverage to IOLTAs under the program.
    Some parties argued that the exclusion of IOLTAs from the program 
creates an unintended dilemma for

[[Page 72257]]

lawyers. Either a lawyer can keep the clients' funds in the IOLTA (with 
limited insurance coverage), or the lawyer can transfer these funds to 
a noninterest-bearing transaction account in order to take advantage of 
the full protection provided by the Transaction Account Guarantee 
Program. Some lawyers might decide that their fiduciary responsibility 
with respect to their clients' funds mandates the transfer of the funds 
to a fully protected noninterest-bearing transaction account. Such a 
transfer would adversely affect funding for law-related public service 
programs that rely heavily on the interest from IOLTAs and could result 
in the loss of legal services to low-income populations.
    Also, some of these commenters argued that an IOLTA should not be 
viewed as an interest-bearing account because the interest does not 
inure to the benefit of either the lawyer or the client. In addition, 
some commenters argued that IOLTAs are similar to noninterest-bearing 
transaction accounts such as corporate payroll accounts, one of the 
types of accounts that the Transaction Account Guarantee Program is 
designed to guarantee. They mentioned that IOLTAs are exempt from the 
prohibition on the payment of interest on demand accounts, and but for 
this exemption, IOLTAs would be similar to noninterest-bearing accounts 
covered by the Transaction Account Guarantee Program. See 12 CFR Part 
204.
Public Fund Accounts
    A number of commenters recommended that full protection under the 
Transaction Account Guarantee Program be extended to interest-bearing 
accounts owned by the government or accounts that contained public 
funds. In support of this position, the commenters argued that full 
protection for such accounts would enable insured depository 
institutions not to pledge collateral for the uninsured portion of the 
account inasmuch as no portion would be uninsured. If the bank were not 
required to pledge collateral, the bank's liquidity would be increased.
NOW Accounts
    The law provides that certain depositors are eligible to hold 
``negotiable order of withdrawal'' or NOW accounts. Though these 
accounts may be interest-bearing, the account is similar to a demand 
deposit account in that the depositor is permitted to make withdrawals 
by negotiable or transferable instruments. See 12 U.S.C. 1832. In fact, 
a NOW account is defined as a type of ``transaction account'' for 
reserve requirement purposes. See 12 CFR 204.2(e)(2). One commenter 
argued that a NOW account, being a transaction account and also being 
an account with limited interest, should be protected under the 
Transaction Account Guarantee Program.
    In all of the comments summarized above (involving IOLTAs, public 
fund accounts, and NOW accounts), the argument was made that the FDIC 
should extend the full protection under the Transaction Account 
Guarantee Program to certain types of interest-bearing accounts. Other 
commenters recommended that the Transaction Account Guarantee Program 
be expanded to cover all NOW accounts, regardless of the class of owner 
or the amount of interest paid.
    In general, for purposes of the Transaction Account Guarantee 
Program, the FDIC wishes to maintain the distinction between (1) 
noninterest-bearing accounts and (2) interest-bearing accounts. As 
discussed below, however, the FDIC has decided to create certain 
exceptions.
    First, the FDIC has decided to create an exception for IOLTAs. As 
noted by the commenters, the interest on IOLTAs does not inure to the 
benefit of either the law firm or the clients. Thus, from the 
perspective of the law firm and the clients, the account produces the 
same economic result as a noninterest-bearing transaction account. For 
this reason, the FDIC has amended the definition of ``noninterest-
bearing transaction account'' to include IOLTAs. In providing 
protection to IOLTAs, the FDIC also includes attorney trust accounts 
designated as ``IOLAs'' or ``IOTAs'' (as such accounts are designated 
in some states). The FDIC will treat all such accounts as IOLTAs for 
purposes of the Transaction Account Guarantee Program.
    Second, the FDIC has decided to create an exception for NOW 
accounts with interest rates no higher than 0.50 percent. With such a 
rate, the NOW account will be similar to a noninterest-bearing 
transaction account. Therefore, the account will be protected under the 
Transaction Account Guarantee Program. This change should provide 
stability to payment processing accounts structured as NOW accounts, 
without creating risks of destabilizing money market mutual funds or 
allowing weaker institutions to attract deposits in these ownership 
categories through higher interest rates.
    Another exception was created through the Interim Rule. This 
exception, applicable to certain types of sweep accounts, is discussed 
below.
Sweep Accounts
    Several commenters addressed the FDIC's treatment of sweep accounts 
in the Transaction Account Guarantee Program. Several commenters 
supported the FDIC's decision to provide a temporary full guarantee of 
balances resulting from certain deposit reclassification programs. 
These commenters also pointed out that some sweep programs involve time 
deposits, rather than savings accounts. Accordingly, several of the 
commenters recommended that the FDIC extend the temporary full 
guarantee under the Transaction Account Guarantee Program to include 
other types of deposit reclassification programs, such as those that 
involve time deposits. A few commenters further suggested that instead 
of expanding coverage to include transfers to time deposits as well as 
savings deposits, the FDIC should instead provide unlimited deposit 
guarantees of all noninterest-bearing deposits. A few commenters also 
requested that the FDIC provide temporary full guarantees of all 
noninterest-bearing transaction accounts regardless of the type of 
deposit reclassification program used. One commenter suggested that the 
exception for funds swept to noninterest-bearing savings accounts be 
extended to include funds swept from noninterest-bearing transaction 
accounts to noninterest-bearing money market deposit accounts.
    The Final Rule provides that the FDIC will treat funds in sweep 
accounts in accordance with the usual rules and procedures for 
determining sweep balances at a failed depository institution. Under 
these rules, and for purposes of the Transaction Account Guarantee 
Program, the FDIC will treat funds swept or transferred from a 
noninterest-bearing transaction account to another type of deposit or 
nondeposit account as being in the account to which the funds were 
transferred. Under the Transaction Account Guarantee Program, an 
exception will exist for deposit reclassification programs where funds 
are swept from a noninterest-bearing transaction account to a 
noninterest-bearing savings account. Such swept funds will be treated 
as being in a noninterest-bearing transaction account. As a result of 
this treatment, funds swept into a noninterest-bearing savings account 
as part of a bank's reclassification program will be guaranteed by the 
Transaction Account Guarantee Program. Some commenters requested 
guidance as to the meaning of ``savings account.'' The FDIC does not 
intend to create a special definition of ``savings account'' for

[[Page 72258]]

purposes of the Transaction Account Guarantee Program. For purposes of 
the Final Rule, a ``savings account'' is considered a type of ``savings 
deposit'' as defined in Regulation D issued by the Board of Governors 
of the Federal Reserve System, 12 CFR 204.2(d), and the sweep programs 
at issue typically are established for purposes of Regulation D.
    Some commenters requested guidance as to the meaning of the word 
``sweep'' or the meaning of ``swept funds.'' These commenters argue 
that these terms do not clearly capture all of the technical meanings 
under which some programs operate. As such, they argue, requiring banks 
to suspend such programs in order to ensure coverage by the Transaction 
Account Guarantee Program could introduce unnecessary operational 
challenges. For purposes of this rule, funds are ``swept'' from a 
noninterest-bearing transaction account to a noninterest-bearing 
savings account if the funds are transferred from one account to 
another. Also, a ``sweep'' occurs if the noninterest-bearing 
transaction account is reclassified as a noninterest-bearing savings 
account. In the latter case, the ``sweep'' is the reclassification of 
the account.
Assessments
    In regard to the 10 basis point assessment that will be imposed on 
participating entities that do not opt-out of the Transaction Account 
Guarantee Program, one commenter requested clarification as to how this 
assessment would be calculated. Consistent with the Amended Interim 
Rule, the Final Rule provides that the 10 basis points will be imposed 
on any deposit amounts in noninterest-bearing transaction accounts, as 
defined in the Final Rule, that exceed the existing deposit insurance 
limit of $250,000. Another commenter mistakenly thought that the FDIC 
would be requiring all participating institutions to perform an 
insurance determination at the depositor level in order to calculate 
its supplemental insurance premium due. The commenters concerns are 
unfounded; institutions only will be required to report separately the 
amount of noninterest-bearing transaction accounts over $250,000, but 
they will have the option to exclude certain amounts as determined and 
documented by the institution.
    One commenter also suggested that the premiums assessed for the 
Transaction Account Guarantee Program should be based on the quarterly 
average balances of such accounts rather than on the quarter-end 
balances. While it is true that these deposit products typically have 
more volatile daily balances, the additional cost and reporting burden 
associated with such a requirement do not seem appropriate given the 
temporary nature of the guarantee program.
    Finally, with regard to the Transaction Account Guarantee Program, 
the Final Rule contains a technical change from the provisions of the 
Amended Interim Rule. Where the Amended Interim Rule provided that 
funds in noninterest-bearing transaction accounts would be ``insured in 
full,'' the Final Rule indicates that funds in such accounts are 
``guaranteed in full.''

Disclosures

    The Interim Rule provided for a number of disclosures relative to 
both the Debt Guarantee Program and the Transaction Account Guarantee 
Program. The FDIC sought comments specific to the disclosures related 
to the Debt Guarantee Program. The FDIC's goal in requiring disclosures 
was to foster creditor confidence in the Program; the FDIC asked 
whether there were alternative, less burdensome means to achieve this 
goal and whether the creditor confidence provided by the disclosures 
outweighed the burden on participating entities in providing them.
    Although the FDIC specifically requested comment on the disclosure 
requirements of the Debt Guarantee Program, the FDIC received comments 
on disclosures relating to both components of the TLG Program, with 
specific comments on disclosures for sweep accounts. Comments were also 
provided on the FDIC's stated intent to publish a list of entities that 
have opted out of either or both components of the program. Several 
commenters requested that the FDIC provide more standardized language 
for the required disclosures.
    Some commenters requested that the deadline for compliance with the 
disclosure requirements be extended from December 1, 2008, to a later 
date. As provided in the Amended Interim Rule, the deadline for 
compliance with the disclosure requirements has been extended until 
December 19, 2008, a date that the FDIC continues to believe is 
reasonable.
FDIC's Publication of Participation in the TLG Program
    A number of bankers who commented on the Amended Interim Rule 
expressed the view that the FDIC's Web site publication of institutions 
that are not participating in the TLG Program will, as one banker put 
it, ``cast a shadow'' on such institutions as not having full FDIC 
insurance and will result in a marketing disadvantage for those 
institutions. One of the bankers noted that this result would be unfair 
to institutions that had no liquidity issues. The FDIC continues to 
believe it is important that both lenders and depositors be able to 
ascertain, from one central source (the FDIC's Web site), whether 
entities eligible to participate in the TLG Program are participating 
in either or both components of the Program. The FDIC further believes 
that any customer confusion that might otherwise disadvantage some 
institutions could be addressed in customer disclosures provided by the 
institutions.
Disclosure Requirements for Debt Guarantee Program
    The FDIC received several comments on the Interim Rule and the 
Amended Interim Rule that strongly encouraged the FDIC to impose 
standard, uniform disclosures for all applicable debt issuance 
announcements and disclosure documents. One commenter maintained that 
such standard disclosures are critical for the ``uniformity of the 
product'' affecting the ``universal access of banks and equality of 
pricing among banks.'' Several commenters also asked the FDIC to state 
affirmatively that the TLG Program is backed by the ``full faith and 
credit'' of the United States.
    The FDIC has responded to the concerns raised by the commenters 
seeking uniform disclosures in the Final Rule by prescribing specific 
disclosure statements to be used in written materials underlying debt 
issued on or after December 19, 2008, through June 30, 2009, that is 
covered by the Debt Guarantee Program. Similarly, the FDIC has 
prescribed a written statement to be used on all senior unsecured debt 
issued by participating entities during that time period that is not 
covered under the Debt Guarantee Program.
Disclosure Requirements for Transaction Account Guarantee Program
    A number of commenters, including financial institutions and trade 
associations, objected to the requirement that a depository institution 
post a notice in the lobby of its main office and in each branch 
indicating whether it has chosen to participate in the Transaction 
Account Guarantee Program. In general, the financial institutions that 
commented on this matter felt that disclosing such a matter would be 
counterproductive to the intent of stabilizing the economy. In 
addition, some financial institutions believe that as a result of the 
required notice, an institution that declined to participate in the 
program would likely see depositors redirect their funds to an

[[Page 72259]]

institution that has chosen to participate. Accordingly, commenters 
believe that the notice requirement would negatively affect those 
institutions that chose not to participate in the Transaction Account 
Guarantee Program. Community banks argued that, due to the notice 
requirement, small, healthy, community institutions would feel 
pressured into participating in the Transaction Account Guarantee 
Program, and could end up financing the costs of the economic crisis, 
which they viewed as having been created primarily by large 
institutions that undertook risky business plans.
    The Massachusetts Bankers Association also objected to the 
provision in the Interim Rule that stated that the FDIC would make 
publicly available the list of institutions that choose to opt-out of 
the Transaction Account Guarantee Program. Currently, all excess 
deposits of Massachusetts state-chartered savings and cooperative banks 
are fully insured by one of two State funds. Such banks with excess 
coverage have already paid assessments to one of the two Massachusetts 
deposit insurance funds, and may not believe it is worth the financial 
cost to remain in the Transaction Account Guarantee Program. The 
commenter believes that the disclosure requirements will put banks in 
Massachusetts that choose to opt-out at a significant disadvantage for 
the reasons stated above. The commenter suggests that the FDIC include 
an explanatory statement on any opt-out list published by the FDIC that 
certain institutions, identified on the list, have their deposits fully 
insured by state funds. In addition, requiring institutions to post 
notices at each branch could lead to consumer confusion and uncertainty 
regarding the safety of their deposits.
    One bank noted that it does not offer noninterest-bearing 
transaction accounts; thus, it would be meaningless and potentially 
confusing to customers for the bank to provide a notice that the bank 
is not participating in the Transaction Account Guarantee Program. The 
FDIC agrees with this comment and has thus modified the transaction 
account guarantee disclosure requirement to indicate that it applies 
only to insured depository institutions that offer noninterest-bearing 
transaction accounts, as that term is defined in the Final Rule.
    The FDIC believes it is essential for all insured depository 
institutions that offer noninterest-bearing transaction accounts to 
comply with the disclosure requirements in the Final Rule to ensure 
that all depositors of FDIC-insured depository institutions are aware 
of the federal protection afforded in connection with their deposits. 
The Final Rule, however, does not prohibit an institution from 
supplementing the FDIC's disclosure requirements by providing 
additional information to its customers, including an explanation as to 
why the institution has opted out of the Transaction Account Guarantee 
Program. For example, Massachusetts banks that opt-out may wish to 
remind consumers of the additional coverage already available to them.
    One commenter asked if the requirement to post a notice in an 
insured depository institution's lobby and branches extended to loan 
production offices. The key criteria for a proposed facility to qualify 
as a branch is accepting deposits, paying checks, or lending money 
pursuant to section 3(o) of the FDI Act. In most instances, loan 
production offices are involved with authorized loan origination, loan 
approval, and loan closing activities. If this is the case, the loan 
production office would not be considered a branch, and the lobby 
notice requirement related to the Transaction Account Guarantee Program 
would not apply.
    Several commenters suggested that the FDIC provide a sample 
disclosure notice to serve as a safe harbor for complying with the 
disclosure requirements for the Transaction Account Guarantee Program. 
In response to those comments, the Final Rule includes safe harbor 
sample notices for institutions participating in the Transaction 
Account Guarantee Program and for those that choose not to.
    A group of bankers who commented on the Interim Rule suggested that 
online disclosure requirements should be required for institutions that 
offer Internet deposit services. They noted that, because an increasing 
number of depositors interact with their depository institutions only 
through on-line banking services, in order to provide effective notice 
to depositors about whether an institution is participating in the 
Transaction Account Guarantee Program, the FDIC should require website 
disclosure. The FDIC agrees with that observation, as reflected in the 
Final Rule.
    The FDIC received several comments regarding disclosure 
requirements related to sweep accounts. The Amended Interim Rule 
required that, if an institution used sweep arrangements or took other 
actions that resulted in funds being transferred or reclassified to an 
interest-bearing account or nontransaction account, the institution was 
required to disclose those actions to the affected customers and 
clearly advise them, in writing, that such actions would void the 
FDIC's guarantee. Commenters requested that the FDIC clarify how this 
requirement applies when an institution offers a product where funds 
are swept from a noninterest-bearing transaction account to a 
noninterest-bearing savings account. Since funds swept from a 
noninterest-bearing transaction account to a noninterest-bearing 
savings account are guaranteed under the Transaction Account Guarantee 
Program, the FDIC has modified the sweep-account disclosure requirement 
to clarify that the disclosure requirement applies only when funds in a 
noninterest-bearing transaction account are swept, transferred or 
reclassified so that they no longer are eligible for the guarantee 
provided under the Transaction Account Guarantee Program.
    A law firm commenting on behalf of several large banks and other 
financial organizations suggested that the FDIC provide a standard 
disclosure statement for the sweep account disclosure requirement. 
Although requiring standard disclosure language might be helpful to the 
industry, the FDIC notes that sweep products differ significantly 
throughout the industry. Sweep products include other deposit accounts, 
repurchase agreements, Eurodollar accounts at affiliated foreign 
branches, international banking facilities, and money market funds. 
Given the complexity and diversity of these and other sweep products, 
the FDIC believes it is preferable for institutions to fashion their 
own disclosure statement to fit the applicable sweep product, as long 
as the disclosure statement complies with the requirements in the Final 
Rule that the disclosures be accurate, clear, and in writing.
    The same law firm also requested that the effective date for the 
sweep-account disclosure requirement be postponed until January 1, 
2009, to provide sufficient time for institutions to implement the 
notice requirement in their regular monthly statement cycle. The FDIC 
notes that the disclosure requirements in the Amended Interim Rule have 
been in effect since October 23, 2008. Also, the FDIC has extended the 
effective date of the disclosure requirements in the Final Rule until 
December 19, 2008. Accordingly, especially in light of the exigencies 
that have triggered the need for the TLG Program, the FDIC believes the 
industry has sufficient time to prepare to implement by December 19 
2008, the sweep account (and the other)

[[Page 72260]]

disclosure requirements in the Final Rule.
Payment of Claims
    In the Interim Rule, the FDIC sought suggestions for modifying the 
claims process associated with the Debt Guarantee Program so that 
claimants could be paid more quickly without exposing the FDIC to undue 
risk. In response, the FDIC received comments from a number of 
commenters who advocated changing the Debt Guarantee Program to provide 
for an unconditional guarantee by the FDIC that payment be made as 
principal and interest becomes due and payable. At least two of these 
commenters suggested that, for debt maturing after June 30, 2012, 
guarantee payments made according to the contracted schedule might have 
to cease as of June 30, 2012, and a final guarantee payment would need 
to be made because the Debt Guarantee Program expires at that time. 
According to many of the commenters, if the FDIC fails to make payment 
to a holder of debt as soon as its issuer defaults on a payment, the 
demand for debt under the FDIC's Debt Guarantee Program could be 
severely curtailed. The investors most likely to purchase FDIC-
guaranteed debt, such as fund managers and central banks, are 
particularly focused on ensuring timely receipt of scheduled payments 
of principal and interest, with minimal credit risk exposure. By and 
large, the commenters believe that the Debt Guarantee Program, as 
structured under the Amended Interim Rule, does not sufficiently meet 
the investment criteria of these investors.
    Some of the commenters stated that the Amended Interim Rule, as 
currently structured, will only benefit the largest and most 
creditworthy financial institutions, namely those with an established 
investment grade credit rating. One commenter suggested that amending 
the regulation in a manner that provides for a standard credit rating 
will allow many more financial institutions to readily access the debt 
markets and, in so doing, will enhance the flow of capital from 
investors to financial institutions without bias to the size of the 
issuing institution.
    Several commenters suggested that the Debt Guarantee Program should 
mirror the Credit Guarantee Scheme established in the U.K., which 
unconditionally and irrevocably guarantees timely payment as principal 
and interest become due and payable, without delay other than any 
applicable grace period. Some commenters recommended that the FDIC 
consider adopting the U.K. program's feature that the guarantee be 
effective immediately upon a payment default. They also pointed out 
that a relatively attractive aspect of this program is the continued 
payment at the contract rate of interest. Three of these commenters 
cautioned that disparity between the Debt Guarantee Program and the 
U.K.'s scheme could result in the guaranteed obligations of U.S. banks 
being less liquid and more costly, and therefore less attractive to 
investors. This would put U.S. banks at a competitive disadvantage 
compared to financial institutions issuing debt under the U.K.'s Credit 
Guarantee Scheme.
    The FDIC recognizes the commenters' concerns with the Debt 
Guarantee Program as currently drafted and has determined to 
substantially enhance the timeliness of payment under the guarantee. By 
these revisions, the FDIC intends to increase the likelihood that FDIC-
guaranteed debt issuances by participating institutions attain the 
highest ratings for that class of investment which will help ensure 
that FDIC-guaranteed debt instruments are widely accepted within the 
investment community. The FDIC also acknowledges the efficacy of 
certain elements of the structure of the guarantee program implemented 
in the U.K. Although the FDIC is declining to adopt the U.K. scheme, 
certain of the changes provided for in the Final Rule parallel aspects 
of the U.K. program, and the FDIC expects that the Final Rule will 
enable U.S. financial institution debt guaranteed by the FDIC to 
maintain a sufficient level of competitiveness in the international 
markets.

V. The Final Rule

    After considering the comments submitted on various aspects of the 
Interim Rule and the Amended Interim Rule, the FDIC has adopted a Final 
Rule. While there are a number of limited or technical changes that 
cause the Final Rule to differ from the Amended Interim Rule, the Final 
Rule differs substantively from the Amended Interim Rule by:
     Revising the definition of senior unsecured debt;
     Providing an alternative means for establishing a 
guarantee cap for insured depository institutions that either had no 
senior unsecured debt outstanding or only had federal funds purchased 
as of September 30, 2008;
     Combining debt guarantee limits of a participating insured 
depository institution and its parent holding company(ies);
     Approving trade confirmations as a sufficient form of 
written agreement for senior unsecured debt;
     Recognizing IOLTAs as a type of noninterest-bearing 
transaction account for purposes of the Transaction Account Guarantee 
Program;
     Recognizing NOW accounts with low interest rates as a type 
of noninterest-bearing transaction account for purposes of the 
Transaction Account Guarantee Program;
     Prescribing more specific disclosures for both components 
of the TLG Program;
     Guaranteeing the timely payment of principal and interest 
following payment default; and
     Revising the fee structure for the Debt Guarantee Program.
    A discussion of these revisions follows.
    Senior unsecured debt.
Debt With Maturity of Thirty Days or Less
    The FDIC received a large number of comments that requested that 
the FDIC remove federal funds and other short-term debt from the 
definition of senior unsecured debt. The commenters questioned the fees 
charged by the Debt Guarantee Program in light of similar market costs 
and noted that other recently announced or implemented federal programs 
had contributed to improved conditions in the markets. The FDIC 
responded to those comments by revising the definition of senior 
unsecured debt to exclude any obligation with a stated maturity of 
thirty days or less. The FDIC believes that the Debt Guarantee Program 
should help institutions to obtain stable, longer term sources of 
funding where liquidity is most lacking.
    The guarantee on any guaranteed senior unsecured debt instrument 
issued prior to December 6, 2008, with a stated maturity of thirty days 
or less will expire on the earlier of: (1) The date the issuer opts out 
(if it does), or (2) the maturity date of the instrument.
Specific Debt Instruments Included or Excluded From Coverage
    The FDIC continues to receive questions regarding whether certain 
specific instruments would be eligible for coverage under the Debt 
Guarantee Program. In the Final Rule the FDIC provides additional 
clarification through a modified list of non-inclusive examples of 
instruments that would be (or would not be) considered senior unsecured 
debt for purposes of the Debt Guarantee Program. The revisions 
reinforce the FDIC's previous statements that the Debt Guarantee 
Program is not designed to encourage the development of or to promote 
innovative or complex sources of funding, but to enhance the

[[Page 72261]]

liquidity of the inter-bank lending market and senior unsecured bank 
debt funding.
    The Final Rule provides, in order to differentiate common floating-
rate debt from structured notes, that senior unsecured debt may pay 
either a fixed or floating interest rate based on a commonly-used 
reference rate with a fixed amount of scheduled principal payments. The 
Final Rule further provides that the term ``commonly-used reference 
rate'' includes a single index of a Treasury bill rate, the prime rate, 
and LIBOR.
    The Final Rule also provides that, if the debt meets the other 
qualifying factors contained in the rule, senior unsecured debt may 
include, for example, the following debt: Federal funds; promissory 
notes; commercial paper; unsubordinated unsecured notes, including 
zero-coupon bonds; U.S. dollar denominated certificates of deposit owed 
to an insured depository institution, an insured credit union as 
defined in the Federal Credit Union Act, or a foreign bank; U.S. dollar 
denominated deposits in an IBF of an insured depository institution 
owed to an insured depository institution or a foreign bank; and U.S. 
dollar denominated deposits on the books and records of foreign 
branches of U.S. insured depository institutions that are owed to an 
insured depository institution or a foreign bank. The term ``foreign 
bank'' does not include a foreign central bank or other similar foreign 
government entity that performs central bank functions or a quasi-
governmental international financial institution such as the IMF or the 
World Bank. The phrase ``owed to an insured depository institution, an 
insured credit union as defined in the Federal Credit Union Act or a 
foreign bank'' means owed to an insured depository institution, an 
insured credit union, or a foreign bank in its own capacity and not as 
agent.
    The Final Rule states that senior unsecured debt excludes, for 
example, any obligation with a stated maturity of ``one month''; \9\ 
obligations from guarantees or other contingent liabilities; 
derivatives; derivative-linked products; debts that are paired or 
bundled with other securities; convertible debt; capital notes; the 
unsecured portion of otherwise secured debt; negotiable certificates of 
deposit; deposits denominated in a foreign currency or other foreign 
deposits (except those otherwise permitted in the rule, as explained in 
the preceding paragraph); revolving credit agreements; structured 
notes; instruments that are used for trade credit; retail debt 
securities; and any funds regardless of form that are swept from 
individual, partnership, or corporate accounts held at depository 
institutions. Also excluded are loans from affiliates, including 
parents and subsidiaries, and institution affiliated parties.
---------------------------------------------------------------------------

    \9\ This recognizes that certain instruments have stated 
maturities of ``one month,'' but have a term of up to 35 days 
because of weekends, holidays, and calendar issues.
---------------------------------------------------------------------------

Alternative Method for Establishing Debt Cap for Entities With No 
Unsecured Debt

    In the Amended Interim Rule, the FDIC asked whether it should 
provide a means for an eligible entity to participate in the Debt 
Guarantee Program even if the entity had no senior unsecured debt as of 
the threshold date of September 30, 2008. Previously, this 
determination and the extent of the entity's guaranteed debt limit were 
made by the FDIC on a case-by-case basis. The FDIC sought suggestions 
for alternative means of making this determination. The Final Rule 
provides that if a participating entity that is an insured depository 
institution had either no senior unsecured debt as of September 30, 
2008, or only federal funds purchased, its debt guarantee limit is two 
percent of its consolidated total liabilities as of September 30, 2008. 
In specifying the amount of guaranteed debt that may be issued by an 
insured depository institution, the FDIC anticipates that the large 
number of insured depository institutions that reported no senior 
unsecured debt (as that term has been redefined in the Final Rule) as 
of September 30, 2008, will be able to make their opt-out decisions 
with more certainty and begin to issue debt without delay. If a 
participating entity other than an insured depository institution had 
no senior unsecured debt as of September 30, 2008, it may make a 
request to the FDIC to have some amount of debt covered by the Debt 
Guarantee Program. The FDIC, after consultation with the appropriate 
Federal banking agency, will decide whether, and to what extent, such 
requests will be granted on a case-by-case basis.

Combining Debt Guarantee Limits of a Participating Insured Depository 
Institution and Its Parent Holding Company

    The Final Rule provides additional flexibility to some 
participating entities by permitting a participating insured depository 
institution to issue debt under its debt guarantee limit as well as its 
holding company's(ies') debt guarantee limit(s). With proper written 
notice both to the FDIC and to its parent holding company(ies), a 
participating insured depository institution may issue guaranteed debt 
in an amount equal to the institution's limit plus its holding 
company's(ies') limit(s), so long as the total guaranteed debt issued 
by the insured depository institution and its holding company(ies) does 
not exceed their combined debt guarantee limit.

Trade Confirmations as a Sufficient Written Agreement

    The Amended Interim Rule required senior unsecured debt to be 
evidenced by a written agreement. Commenters raised concerns that 
written agreements were uncommon in transactions involving debt such as 
federal funds or other short-term borrowings. Although the decision of 
the FDIC to exclude borrowings of thirty days or less from the 
definition of senior unsecured debt in the Final Rule should largely 
eliminate this concern, the Final Rule provides that senior unsecured 
debt (that otherwise meets the requirements of the rule) can be 
evidenced by either a written agreement or an industry-accepted trade 
confirmation. This clarification was made in an effort to encompass all 
relevant forms of unsecured debt without placing unnecessary burdens on 
the issuing parties.

IOLTAs as a Type of Noninterest-Bearing Transaction Account for 
Purposes of the Transaction Account Guarantee Program

    For purposes of the Transaction Account Guarantee Program, in the 
Amended Interim Rule, the FDIC had defined a ``noninterest-bearing 
transaction account'' as a transaction account as defined in 12 CFR 
204.2 that is (i) maintained at an insured depository institution; (ii) 
with respect to which interest is neither accrued nor paid; and (iii) 
on which the insured depository institution does not reserve the right 
to require advance notice of an intended withdrawal. 12 CFR 
370.2(h)(1). In the Amended Interim Rule, a noninterest-bearing 
transaction account did not include, for example, a negotiable order of 
withdrawal account (NOW account) or a money market deposit account 
(MMDA), as those accounts are defined in 12 CFR 204.2.
    Many of the comments received by the FDIC regarding the Transaction 
Account Guarantee Program sought to have the FDIC's transaction account 
guarantee extend to cover Interest on Lawyers Trust Accounts (IOLTAs). 
As explained previously, IOLTAs are interest-bearing accounts 
maintained by

[[Page 72262]]

an attorney or a law firm for its clients. The interest from IOLTAs 
typically funds law-related public service programs. The interest does 
not inure to the benefit of the law firm or the clients; for this 
reason, from the perspective of the law firm and the clients, the 
account is the economic equivalent of a noninterest-bearing transaction 
account. Accordingly, in the Final Rule the FDIC has provided that the 
term ``noninterest-bearing transaction account'' shall include IOLTAs 
(or IOLAs, or IOTAs). As a result, assuming that the other requirements 
of the Transaction Account Guarantee Program are met by a participating 
entity and irrespective of the standard maximum deposit insurance 
amount defined in 12 CFR Part 330, IOLTAs will be guaranteed by the 
FDIC in full as noninterest-bearing transaction accounts.

NOW Accounts With Low Interest Rates as a Type of Noninterest-Bearing 
Transaction Account for Purposes of the Transaction Account Guarantee 
Program

    As discussed above, some commenters argued that the Transaction 
Account Guarantee Program should be extended to protect funds in NOW 
accounts. They noted that when the interest rate is low, such an 
account is similar to a noninterest-bearing transaction account. 
Accordingly, in the Final Rule, the FDIC has provided that NOW accounts 
with interest rates no higher than 0.50% are considered noninterest-
bearing transaction accounts. The interest rate must not exceed 0.50% 
at any time prior to the expiration date of the program. If an insured 
depository institution that currently offers NOW accounts at interest 
rates above 0.50% readjusts the interest rate on such accounts to a 
rate no higher than 0.50% before January 1, 2009, and commits to 
maintain the adjusted rate until December 31, 2009, the affected NOW 
accounts will be considered noninterest-bearing transaction accounts 
for purposes of the Final Rule.

Disclosures

In General
    As explained in detail below, the Final Rule imposes disclosure 
requirements in connection with each of the components of the TLG 
Program. The purpose of the required disclosures is to ensure that 
depositors and applicable lenders and creditors are informed of the 
participation of eligible entities in the Debt Guarantee Program and/or 
the Transaction Account Guarantee Program. To this same end, the FDIC 
will maintain and post on its Web site a list of entities that have 
opted out of either or both components of the TLG Program.
Publication of Participation in the TLG Program on the FDIC's Web Site
    As under the Amended Interim Rule, under the Final Rule, the FDIC 
will publish:
    (1) A list of the eligible entities that have opted out of the Debt 
Guarantee Program, and
    (2) A list of the eligible entities that have opted out of the 
Transaction Account Guarantee Program. (In Financial Institution Letter 
125-2008, dated November 3, 2008, the FDIC provided details of the opt-
out and opt-in procedures of the TLG Program.)
Disclosures Under the Debt Guarantee Program
    Under the Final Rule, if an eligible institution is participating 
in the Debt Guarantee Program, it must include the following disclosure 
statement in all written materials underlying any senior unsecured debt 
it issues on or after December 19, 2008, through June 30, 2009, that is 
covered under the Debt Guarantee Program:

    This debt is guaranteed under the Federal Deposit Insurance 
Corporation's Temporary Liquidity Guarantee Program and is backed by 
the full faith and credit of the United States. The details of the 
FDIC guarantee are provided in the FDIC's regulations, 12 CFR Part 
370, and at the FDIC's Web site, http://www.fdic.gov/tlgp. The 
expiration date of the FDIC's guarantee is the earlier of the 
maturity date of the debt or June 30, 2012.

    Similarly, if an eligible institution is participating in the Debt 
Guarantee Program, it must include the following disclosure statement 
in all written materials underlying any senior unsecured debt it issues 
on or after December 19, 2008, through June 30, 2009, that is not 
covered under the Debt Guarantee Program:

    This debt is not guaranteed under the Federal Deposit Insurance 
Corporation's Temporary Liquidity Guarantee Program.

    These specific disclosure requirements differ from the general 
requirements imposed under the Amended Interim Rule.
Disclosures Under the Transaction Account Guarantee Program
    Under the Final Rule, 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 Web site clearly indicating 
whether or not the entity is participating in the Transaction Account 
Guarantee Program. Because IOLTAs and low-interest NOW accounts are 
considered noninterest-bearing transaction accounts under the Final 
Rule, institutions that offer these accounts must comply with this 
notice requirement. If the institution is participating in the 
Transaction Account Guarantee Program, the notice must also state that 
funds held in noninterest-bearing transaction accounts at the 
institution are guaranteed in full by the FDIC. These disclosures are 
the same as those required under the Amended Interim Rule, except that 
they include a Web site notice requirement for institutions that offer 
Internet deposit services and clarify that the guarantee provided by 
the Transaction Account Guarantee program is separate from the FDIC's 
general deposit insurance rules.
    Like the Amended Interim Rule, the Final Rule requires that the 
disclosures be provided in simple, readily understandable text. In 
response to the request of commenters, the Final Rule includes the 
following sample notices for: (1) Institutions participating in the 
Transaction Account Guarantee Program and (2) those not participating 
in it:

For Participating Institutions

    [Institution Name] is participating in the FDIC's Transaction 
Account Guarantee Program. Under that program, through December 31, 
2009, 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 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 through December 31, 2009 for up to $250,000 under the 
FDIC's general deposit insurance rules.

    In order to alert depositors to the federal protection offered 
their deposits, the FDIC requires disclosures to be made by all insured 
depository institutions that offer noninterest-bearing transaction 
accounts, as provided in the Final Rule. If an institution chooses to 
supplement information contained in the FDIC's sample disclosures with 
an explanation as to why it may have opted out of the Transaction 
Account Guarantee Program, for example, the Final Rule does not 
prohibit such disclosures.
    Similarly, a participating institution should disclose to 
depositors special

[[Page 72263]]

situations where the coverage provided under the Transaction Account 
Guarantee Program may or may not be available. An example is where an 
institution issues official checks drawn on another insured depository 
institution. If that other institution is participating in the 
Transaction Account Guarantee Program, then the payee of the official 
check would be fully covered. If the other institution is not a 
participating institution, then whether the payee is insured for the 
amount of the official check would be based on the FDIC's general 
deposit insurance rules. The institution that provides such official 
checks to its customers must disclose this information to those 
customers.
    The Amended Interim Rule required that, if an institution uses 
sweep arrangements or takes other actions that result in funds being 
transferred or reclassified to an interest-bearing account or 
nontransaction 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. In the Final Rule, the FDIC 
clarifies its previous sweep disclosure requirement by specifying that 
the disclosure requirement applies only when funds in a noninterest-
bearing transaction account are swept, transferred or reclassified so 
that they no longer are eligible for the full guarantee provided under 
the Transaction Account Guarantee Program. Because of the diverse and 
complex nature of sweep instruments, the FDIC does not adopt a standard 
sweep disclosure in the Final Rule. Nevertheless, in fashioning its 
disclosure statement applicable to a specific sweep product, the Final 
Rule obliges participating entities to make the disclosures applicable 
to their sweep products accurately, clearly, and in writing.

Payment of Claims Following Payment Default

    The Final Rule makes no changes to the Amended Interim Rule 
regarding the payment of claims under the Transaction Account Guarantee 
Program. However, after considering the comments relevant to the 
payment of claims under the Debt Guarantee Program, the FDIC has 
significantly altered the Amended Interim Rule with respect to the 
method by which the FDIC will satisfy its guarantee obligation on debt 
issued by institutions and holding companies. These changes are 
designed to provide assurances to the holders of guaranteed debt that 
they will continue to receive timely payments following payment 
default, as defined in section 370.12(b)(1). The changes nonetheless 
allow FDIC to continue to obtain sufficient information necessary to 
make payment to the appropriate party in the proper amount. The 
fundamental changes made in the claims section of the Final Rule (12 
CFR 370.12) relate to: (1) The trigger for the payment obligation; (2) 
the methods by which the guarantee obligation may be satisfied; and (3) 
a requirement for participating entities to agree to certain initial 
undertakings in order to participate in the Debt Guarantee Program.
    The FDIC's payment obligation under the Debt Guarantee Program for 
eligible senior unsecured debt will be triggered by a payment default. 
The Amended Interim Rule envisioned a different claims period for bank 
debt and holding company debt because the guarantee was to be triggered 
by the different insolvency events for the different types of entities: 
Receivership for an insured depository institution and bankruptcy for a 
holding company. By adopting a guarantee obligation triggered by a 
payment default, there is now no reason to provide distinct processes 
for insured depository institutions and holding companies.
    The second major change regarding payment of claims in the Final 
Rule concerns the methodology by which the FDIC will satisfy the 
guarantee obligation. The Final Rule now provides that the FDIC will 
continue to make scheduled interest and principal payments under the 
terms of the debt instrument through its maturity. The FDIC will become 
subrogated to the rights of any debtholder against the issuer, 
including in respect of any insolvency proceeding, to the extent of the 
payments made under the guarantee.
    For debt issuances whose final maturities extend beyond June 30, 
2012, at any time thereafter, the FDIC may elect to make a payment in 
full of all the outstanding principal and interest under the debt 
issuance. The Final Regulation indicates that the FDIC generally will 
consider the failure of an insured depository institution to make a 
payment on its outstanding debt such that the FDIC is required to make 
payment under the guarantee as grounds for the appointment of the FDIC 
as conservator or receiver of such insured depository institution.
    As a result of the comments received on the Amended Interim Rule, 
the FDIC has established new claims filing procedures. The Final Rule 
provides for a process under which a claim may be filed with the FDIC 
by an authorized representative, as established by the issuer, of all 
the debtholders under a particular issuance. The Final Rule requires 
the participating entities to file with the FDIC a form which allows 
the issuer to establish a designated representative as part of its 
election under Part 370. The representative must demonstrate its 
capacity to act on behalf of the debtholders, and must submit the 
information set forth in the rule. The FDIC expects that by working 
through an authorized representative of a class of bondholders it can 
significantly expedite its response to a claim for payment and reduce 
its administrative costs.
    Alternatively, an individual claimant under an issuance for which 
an authorized representative has not been designated, or who chooses 
not to be represented by the designated authorized representative, may 
also file with the FDIC and submit a proof of claim with the required 
information. Under both procedures, the FDIC undertakes to make the 
required payment upon receipt of a conforming proof of claim.
    The FDIC will require specific information to be filed with any 
claim under the program. Such specific information must include 
evidence that a payment default has occurred under the terms of the 
debt instrument and that the claimant is the actual owner of the FDIC-
guaranteed debt obligation or is authorized to act on behalf of the 
owner. In addition, the FDIC must receive an assignment of the 
debtholders' rights in the debt, as well as any claims in any 
insolvency proceeding arising in connection with ownership of FDIC-
guaranteed debt. This assignment must cover all distributions on the 
debt from the proceeds of the receivership or bankruptcy estate of the 
issuer, as appropriate.
    The Final Rule also varies from the Amended Interim Rule in that it 
addresses certain specific legal implications of an entity's 
participation in the Debt Guarantee Program. The Final Rule provides 
that any participating entity acknowledges by its participation in this 
program that it will become indebted to the FDIC for any payments the 
FDIC may make in satisfaction of its guarantee obligation or the 
satisfaction of the guarantee obligations of any affiliate. The issuer 
of guaranteed debt will be unconditionally liable to the FDIC for 
repayment of amounts expended under the guarantee. Further, in the 
event that a participating entity is placed into receivership or 
bankruptcy after the FDIC has made payment on its guarantee, the FDIC 
will be a bona fide creditor in those proceedings. Finally, the Final 
Rule

[[Page 72264]]

requires participating entities to execute and file with the FDIC as 
part of its notification of participation in the Debt Guarantee Program 
a ``Master Agreement.'' Under this document, the participating entity: 
(1) Acknowledges and agrees to the establishment of a debt owed to the 
FDIC for any payment made in satisfaction of the FDIC's guarantee of a 
debt issuance by the participating entity and agrees to honor 
immediately the FDIC's demand for payment on that debt; (2) arranges 
for the assignment to the FDIC by the holder of any guaranteed debt 
issued by the participating entity of all rights and interests in 
respect of that debt upon payment to the holder by the FDIC under the 
guarantee and for the debtholders to release the FDIC of any further 
liability under the Debt Guarantee Program with respect to the 
particular issuance of debt; and (3) provides for the issuer to elect 
to designate an authorized representative of the bondholders for 
purposes of making a claim on the guarantee.

Fee Structure for the Debt Guarantee Program

    As discussed earlier, the Final Rule revises the definition of 
senior unsecured debt to exclude debt with a stated maturity of 30 days 
or less and guarantees the timely payment of principal and interest, 
rather than guaranteeing payment following the bankruptcy or 
receivership of the issuer. These changes and a recognition of the 
effect of the guarantee on an entity's cost of issuing debt necessitate 
revision of the assessment rate for the Debt Guarantee Program. 
Assessment rates under the Debt Guarantee Program are as follows:

------------------------------------------------------------------------
                                                         The annualized
                                                         assessment rate
             For debt with a maturity of:                   (in basis
                                                           points) is:
------------------------------------------------------------------------
180 days or less (excluding overnight debt)...........                50
181-364 days..........................................                75
365 days or greater...................................               100
------------------------------------------------------------------------

    The assessment rates for shorter term debt are lower than the 75 
basis point rate under the Interim Rule and those for longer term debt 
are somewhat higher. The rates in the Final Rule recognize that a 75 
basis point rate generally makes the guarantee uneconomical for shorter 
term debt and significantly understates its value for longer term debt. 
(Charges under the U.K.'s debt guarantee program for longer term debt 
have thus far ranged from approximately 110 basis points to 160 basis 
points.) The FDIC believes that the rates provided for in the Final 
Rule appropriately reflect the value of the guarantee and the market 
value of guaranteed debt.
Initiation of Assessments
    No assessments will be imposed on those eligible entities that opt 
out of the Debt Guarantee Program on or before December 5, 2008. 
Assessments accrue beginning on November 13, 2008, with respect to each 
eligible entity that does not opt out of the Debt Guarantee Program on 
or before December 5, 2008, on all senior unsecured debt (except for 
overnight debt) issued by it on or after October 14, 2008, and on or 
before December 5, 2008, that is still outstanding on that date. 
Beginning on December 6, 2008, assessments accrue on all senior 
unsecured debt with a maturity of greater than 30 days issued by it on 
or after December 6, 2008.
Special Rate for Certain Holding Companies and Other Non-Insured 
Depository Institution Affiliates
    As discussed earlier, the rates set forth above will be increased 
by 10 basis points for senior unsecured debt issued by a holding 
company or another non-insured depository institution affiliate that 
becomes an eligible and participating entity, where, as of September 
30, 2008, or as of the date of eligibility, the assets of the holding 
company's combined insured depository institution subsidiaries 
constitute less than 50 percent of consolidated holding company assets.
Consequences of Exceeding the Debt Guarantee Limit
    Finally, the Interim Rule provided that if a participating entity 
issued debt identified as ``guaranteed by the FDIC'' in excess of the 
FDIC's limit, the participating entity would have its assessment rate 
guaranteed debt increased to 150 basis points on all outstanding 
guaranteed debt. The 150 basis points referenced in the Interim Rule 
represented an amount double the annualized 75 basis point assessment 
rate provided for in the Interim Rule. In the Final Rule, the FDIC 
removed the flat rate of an annualized 75 basis points, and replaced it 
with variable annualized assessment rates reflecting the length of the 
maturity of the debt. In the Final Rule, the FDIC made corresponding 
changes to the rates that will be charged in the event that the 
participating entity exceeds its debt guarantee limit. If that happens, 
the assessment rate charged to the participating entity for all of its 
guaranteed debt will be an amount that is double the annualized 
assessment rate otherwise applicable to the maturity of the debt 
issued, unless the FDIC, for good cause shown, imposes a smaller 
increase.
    In addition, if an entity represents that the debt that it issues 
is guaranteed by the FDIC when it is not, or otherwise violates any 
provision of the TLG Program, the entity may be subject to any of the 
enforcement mechanisms set forth in the Final Rule.

VI. Regulatory Analysis and Procedure

A. Administrative Procedure Act

    Pursuant to section 553(b)(B) of the Administrative Procedure Act 
(APA), notice and comment are not required prior to the issuance of a 
substantive rule if an agency for good cause finds that notice and 
public procedure thereon are impracticable, unnecessary, or contrary to 
the public interest. In addition, 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 both the Interim Rule and the Amended Interim Rule related to 
the TLG Program, the FDIC invoked these good cause exceptions based on 
the severe financial conditions that threatened the stability of the 
nation's economy generally and the banking system in particular; the 
serious adverse effects on economic conditions and financial stability 
that would have resulted from any delay of the effective date of the 
Interim Rule; and the fact that the TLG became effective on October 14, 
2008.
    For these same reasons, the FDIC invokes the APA's good cause 
exceptions with respect to the Final Rule.

B. Community Development and Regulatory Improvement Act

    The Riegle Community Development and Regulatory Improvement Act 
requires that any new regulations and amendments to regulation 
prescribed by a Federal banking agency that imposes additional 
reporting, disclosures, or other new requirements on insured depository 
institutions take effect on the first day of a calendar quarter which 
begins on or after the day the regulations are published in final form, 
unless the agency determines, for good cause published with the 
regulations, that the regulation should become effective before such 
time. 12 U.S.C. 4802(b)(1)(A). The FDIC invoked this good cause 
exception in issuing both the Interim Rule and the Amended Interim Rule 
related to the TLG Program due to

[[Page 72265]]

the severe financial conditions that threatened the stability of the 
nation's economy generally and the banking system in particular; the 
serious adverse effects on economic conditions and financial stability 
that would have resulted from any delay of the effective date of the 
Interim Rule; and the fact that the TLG Program had been in effect 
since October 14, 2008. For the same reasons, the FDIC invokes the good 
cause exception of 12 U.S.C. 4802(b)(1)(A) with respect to the Final 
Rule.

C. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the Final 
Rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Act of 1996 
(SBREFA) Public Law No. 110-28 (1996). As required by law, the FDIC 
will file the appropriate reports with Congress and the General 
Accounting Office so that the Final Rule may be reviewed.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) 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 general notice of proposed rulemaking. Because the 
FDIC has invoked the good cause exception provided for in section 
553(b)(B) of the APA, with respect to the Final Rule, the RFA's 
requirement to prepare a final regulatory flexibility analysis does not 
apply.

E. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the 
information collections contained in the Interim Rule issued by the 
Board on October 23, 2008, were submitted to and approved by the Office 
of Management and Budget (OMB) under emergency clearance procedures and 
assigned OMB Control No. 3064-0166 (expiring on April 30, 2009), 
entitled ``Temporary Liquidity Guarantee Program.''
    The Final Rule makes some changes that add burden to the existing 
collection. Specifically, sections 370.3(h)(1)(A), (B), (C), and (D) 
address various applications for exceptions and eligibility with 
respect to the Debt Guarantee component of the TLG Program. The FDIC 
will submit a request for review and approval of this revision to its 
TLG Program information collection under the emergency processing 
procedures in OMB regulation, 5 CFR 1320.13. The proposed burden 
estimate for the applications is as follows:
    Title: Temporary Liquidity Guarantee Program.
    OMB Number: N3064-0166.
    Estimated Number of Respondents:
    Request for increase in debt guarantee limit--1,000.
    Request for increase in presumptive debt guarantee limit--100.
    Request to opt-in to debt guarantee program--100.
    Request by affiliate to participate in debt guarantee program--50.
    Affected Public: FDIC-insured depository institutions, thrift 
holding companies, bank and financial holding companies.
    Frequency of Response:
    Request for increase in debt guarantee limit--1.
    Request for increase in presumptive debt guarantee limit--once.
    Request to opt-in to debt guarantee program--once.
    Request by affiliate to participate in debt guarantee program--
once.
    Affected Public: FDIC-insured depository institutions, thrift 
holding companies, bank and financial holding companies.
    Average Time per Response:
    Request for increase in debt guarantee limit--2 hours.
    Request for increase in presumptive debt guarantee limit--2 hours.
    Request to opt-in to debt guarantee program--1 hour.
    Request by affiliate to participate in debt guarantee program--2 
hours.
    Estimated Annual Burden:
    Request for increase in debt guarantee limit--2,000 hours.
    Request for increase in presumptive debt guarantee limit--200 
hours.
    Request to opt-in to debt guarantee program--100 hours.
    Request by affiliate to participate in debt guarantee program--100 
hours.
    Previous annual burden--2,199,100.
    Total additional annual burden--2,400.
    Total annual burden--2,201,500 hours.
    The FDIC expects to request approval by December 2, 2008. The FDIC 
and the other banking agencies are also submitting to OMB under 
emergency clearance procedures certain revisions to be made in response 
to the TLG Program to the following currently approved information 
collections: Consolidated Reports of Condition and Income (Call Report) 
[OMB No. 3064-0052 (FDIC), OMB No. 7100-0036 (Board of Governors of the 
Federal Reserve System), OMB No. 1557-0081 (Office of the Comptroller 
of the Currency)], Thrift Financial Report (TFR) [OMB No. 1550-0023 
(Office of Thrift Supervision), and Report of Assets and Liabilities of 
U.S. Branches and Agencies of Foreign Banks [OMB No, 7100-0032 (Board 
of Governors of the Federal Reserve System)]. The Final Rule makes some 
changes that affect the collections of information outlined in the 
Interim Rule and may affect the estimated burden set forth in the 
request for emergency clearance request for OMB No. 3064-0166. However, 
the FDIC plans, within the next 30 days, to follow its emergency 
request with a request under normal clearance procedures in accordance 
with the provisions of OMB regulation 5 CFR 1320.10. Similarly, if the 
agencies obtain OMB approval of their emergency request pertaining to 
revisions to the currently approved information collections identified 
above, the FDIC and the other banking agencies plan to proceed with a 
request under normal clearance procedures. In accordance with normal 
clearance procedures, public comment will be invited for an initial 60-
day comment period and a subsequent 30-day comment period 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. In the interim, interested parties are 
invited to submit written comments by any of the following methods. All 
comments should refer to the name and number of the collection:
     http://www.FDIC.gov/regulations/laws/federal/propose.html.
     E-mail: comments@fdic.gov. 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.

[[Page 72266]]

    A copy of the 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 
3208, Washington, DC 20503.

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 stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation revises part 370 of title 12 of the Code 
of Federal Regulations to read as follows:

PART 370--TEMPORARY LIQUIDITY GUARANTEE PROGRAM

Sec.
370.1 Scope.
370.2 Definitions.
370.3 Debt Guarantee Program.
370.4 Transaction Account Guarantee Program.
370.5 Participation.
370.6 Assessments under the Debt Guarantee Program.
370.7 Assessments for the Transaction Account Guarantee Program.
370.8 Systemic risk emergency special assessment to recover loss.
370.9 Recordkeeping requirements.
370.10 Oversight.
370.11 Enforcement mechanisms.
370.12 Payment on the guarantee.

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


Sec.  370.1  Scope.

    This part sets forth the eligibility criteria, limitations, 
procedures, requirements, and other provisions related to participation 
in the FDIC's temporary liquidity guarantee program.


Sec.  370.2  Definitions.

    As used in this part, the terms listed in this section are defined 
as indicated below. Other terms used in this part that are defined in 
the Federal Deposit Insurance Act (FDI Act) have the meanings given 
them in the FDI Act except as otherwise provided herein.
    (a) Eligible entity.
    (1) The term ``eligible entity'' means any of the following:
    (i) An insured depository institution;
    (ii) A U.S. bank holding company, provided that it controls, 
directly or indirectly, at least one subsidiary that is a chartered and 
operating insured depository institution;
    (iii) A U.S. savings and loan holding company, provided that it 
controls, directly or indirectly, at least one subsidiary that is a 
chartered and operating insured depository institution; or
    (iv) Any other affiliates of an insured depository institution that 
the FDIC, in its sole discretion and on a case-by-case basis, after 
written request and positive recommendation by the appropriate Federal 
banking agency, designates as an eligible entity; such affiliate, by 
seeking and obtaining such designation, also becomes a participating 
entity in the debt guarantee program.
    (b) Insured Depository Institution. The term ``insured depository 
institution'' means an insured depository institution as defined in 
section 3(c)(2) of the FDI Act, 12 U.S.C. 1813(c)(2), except that it 
does not include an ``insured branch'' of a foreign bank as defined in 
section 3(s)(3) of the FDI Act, 12 U.S.C. 1813(s)(3), for purposes of 
the debt guarantee program.
    (c) U.S. Bank Holding Company. The term ``U.S. Bank Holding 
Company'' means a ``bank holding company'' as defined in section 2(a) 
of the Bank Holding Company Act of 1956 (``BHCA''), 12 U.S.C. 1841(a), 
that is organized under the laws of any State or the District of 
Columbia.
    (d) U.S. Savings and Loan Holding Company. The term ``U.S. Savings 
and Loan Holding Company'' means a ``savings and loan holding company'' 
as defined in section 10(a)(1)(D) of the Home Owners' Loan Act of 1933 
(``HOLA''), 12 U.S.C. 1467a(a)(1)(D), that is organized under the laws 
of any State or the District of Columbia and either:
    (1) Engages only in activities that are permissible for financial 
holding companies under section 4(k) of the BHCA, 12 U.S.C. 1843(k), or
    (2) Has at least one insured depository institution subsidiary that 
is the subject of an application under section 4(c)(8) of the BHCA, 12 
U.S.C. 1843(c)(8), that was pending on October 13, 2008.
    (e) Senior Unsecured Debt.
    (1) The term ``senior unsecured debt'' means
    (i) For the period from October 13, 2008 through December 5, 2008, 
unsecured borrowing that:
    (A) Is evidenced by a written agreement or trade confirmation;
    (B) Has a specified and fixed principal amount;
    (C) Is noncontingent and contains no embedded options, forwards, 
swaps, or other derivatives; and
    (D) Is not, by its terms, subordinated to any other liability; and
    (ii) After December 5, 2008, unsecured borrowing that satisfies the 
criteria listed in paragraphs (e)(1)(i)(A) through (e)(1)(i)(D) of this 
section and that has a stated maturity of more than 30 days.
    (2) Senior unsecured debt may pay either a fixed or floating 
interest rate based on a commonly-used reference rate with a fixed 
amount of scheduled principal payments. The term ``commonly-used 
reference rate'' includes a single index of a Treasury bill rate, the 
prime rate, and LIBOR.
    (3) Senior unsecured debt may include, for example, the following 
debt, provided it meets the requirements of paragraph (e)(1) of this 
section: Federal funds purchased, promissory notes, commercial paper, 
unsubordinated unsecured notes, including zero-coupon bonds, U.S. 
dollar denominated certificates of deposit owed to an insured 
depository institution, an insured credit union as defined in the 
Federal Credit Union Act, or a foreign bank, U.S. dollar denominated 
deposits in an international banking facility (IBF) of an insured 
depository institution owed to an insured depository institution or a 
foreign bank, and U.S. dollar denominated deposits on the books and 
records of foreign branches of U.S. insured depository institutions 
that are owed to an insured depository institution or a foreign bank. 
The term ``foreign bank'' does not include a foreign central bank or 
other similar foreign government entity that performs central bank 
functions or a quasi-governmental international financial institution 
such as the International Monetary Fund or the World Bank. References 
to debt owed to an insured depository institution, an insured credit 
union, or a foreign bank mean owed to the institution solely in its own 
capacity and not as agent.
    (4) Senior unsecured debt, except deposits, may be denominated in 
foreign currency.
    (5) Senior unsecured debt excludes, for example, any obligation 
that has a stated maturity of ``one month'' \1\, obligations from 
guarantees or other contingent liabilities, derivatives, derivative-
linked products, debts that are paired or bundled with other 
securities, convertible debt, capital notes, the unsecured portion of 
otherwise secured debt, negotiable certificates of deposit, deposits 
denominated in a foreign currency or other foreign deposits (except as 
allowed under paragraph (e)(3) of this section), revolving credit 
agreements, structured notes, instruments that are used for trade 
credit, retail debt securities, and any funds regardless of

[[Page 72267]]

form that are swept from individual, partnership, or corporate accounts 
held at depository institutions. Also excluded are loans from 
affiliates, including parents and subsidiaries, and institution-
affiliated parties.
---------------------------------------------------------------------------

    \1\ This recognizes that certain instruments have stated 
maturities of ``one month,'' but have a term of up to 35 days 
because of weekends, holidays, and calendar issues.
---------------------------------------------------------------------------

    (f) Newly issued senior unsecured debt. (1) The term ``newly issued 
senior unsecured debt'' means senior unsecured debt issued by a 
participating entity on or after October 14, 2008, and on or before:
    (i) The date the entity opts out, for an eligible entity that opts 
out of the debt guarantee program; or
    (ii) June 30, 2009, for an entity that does not opt out of the debt 
guarantee program.
    (2) The term ``newly issued senior unsecured debt'' includes, 
without limitation, senior unsecured debt
    (i) That matures on or after October 13, 2008 and on or before June 
30, 2009, and is renewed during that period, or
    (ii) That is issued during that period pursuant to a shelf 
registration, regardless of the date of creation of the shelf 
registration.
    (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.
    (h) Noninterest-bearing transaction account. (1) The term 
``noninterest-bearing transaction account'' means a transaction account 
as defined in 12 CFR 204.2 that is
    (i) Maintained at an insured depository institution;
    (ii) With respect to which interest is neither accrued nor paid; 
and
    (iii) On which the insured depository institution does not reserve 
the right to require advance notice of an intended withdrawal.
    (2) A noninterest-bearing transaction account does not include, for 
example, an interest-bearing money market deposit account (MMDA) as 
those accounts are defined in 12 CFR 204.2.
    (3) Notwithstanding paragraphs (h)(1) and (h)(2) of this section, 
for purposes of the transaction account guarantee program, a 
noninterest-bearing transaction account includes:
    (i) Accounts commonly known as Interest on Lawyers Trust Accounts 
(IOLTAs) (or functionally equivalent accounts); and
    (ii) Negotiable order of withdrawal accounts (NOW accounts) with 
interest rates no higher than 0.50 percent if the insured depository 
institution at which the account is held has committed to maintain the 
interest rate at or below 0.50 percent.
    (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 through December 31, 
2009.
    (i) FDIC-guaranteed debt. The term ``FDIC-guaranteed debt'' means 
newly issued senior unsecured debt issued by a participating entity 
that meets the requirements of this part for debt that is guaranteed 
under the debt guarantee program, and is identified pursuant to Sec.  
370.5(h) as guaranteed by the FDIC.
    (j) Debt guarantee program. The term ``debt guarantee program'' 
refers to the FDIC's guarantee program for newly issued senior 
unsecured debt as described in this part.
    (k) Transaction account guarantee program. The term ``transaction 
account guarantee program'' refers to the FDIC's guarantee program for 
funds in noninterest-bearing transaction accounts as described in this 
part.
    (l) Temporary liquidity guarantee program. The term ``temporary 
liquidity guarantee program'' includes both the debt guarantee program 
and the transaction account guarantee program.


Sec.  370.3  Debt Guarantee Program.

    (a) Upon the uncured failure of a participating entity to make a 
timely payment of principal or interest as required under an FDIC-
guaranteed debt instrument, the FDIC will pay the unpaid principal and/
or interest, in accordance with Sec.  370.12 and subject to the other 
provisions of this part.
    (b) Debt guarantee limit.
    (1) Except as provided in paragraphs (b)(2) through (b)(6) of this 
section, the maximum amount of outstanding debt that is guaranteed 
under the debt guarantee program for each participating entity at any 
time is limited to 125 percent of the par value of the participating 
entity's senior unsecured debt, as that term is defined in Sec.  
370.2(e)(1)(i), that was outstanding as of the close of business 
September 30, 2008, and that was scheduled to mature on or before June 
30, 2009.
    (2) If a participating entity that is an insured depository 
institution had either no senior unsecured debt as that term is defined 
in Sec.  370.2(e)(1)(i), or only had federal funds purchased, 
outstanding on September 30, 2008, its debt guarantee limit is two 
percent of its consolidated total liabilities as of September 30, 2008. 
For the purposes of this paragraph (b)(2) of this section, the term 
``federal funds purchased'' means:
    (i) For insured depository institutions that file Reports of 
Condition and Income, unsecured ``federal funds purchased'' as that 
term is used in defining ``Federal Funds Transactions'' in the Glossary 
of the FFIEC Reports of Condition and Income Instructions, and
    (ii) For insured depository institutions that file Thrift Financial 
Reports, ``Federal Funds'' as that term is defined in the Glossary of 
the 2008 Thrift Financial Report Instruction Manual.
    (3) If a participating entity, other than an insured depository 
institution, had no senior unsecured debt as that term is defined in 
Sec.  370.2(e)(1)(i) outstanding on September 30, 2008, the entity may 
seek to have some amount of debt covered by the debt guarantee program. 
The FDIC, after consultation with the appropriate Federal banking 
agency, will decide, on a case-by-case basis, whether such a request 
will be granted and, if granted, what the entity's debt guarantee limit 
will be.
    (4) If an entity becomes an eligible entity after October 13, 2008, 
the FDIC will establish the entity's debt guarantee limit at the time 
of such designation.
    (5) If an affiliate of a participating entity is designated as an 
eligible entity by the FDIC after a written request and positive 
recommendation by the appropriate Federal banking agency (or if the 
affiliate has no appropriate Federal banking agency, a written request 
and positive recommendation by the appropriate Federal banking agency 
of the affiliated insured depository institution), the FDIC will 
establish the entity's debt guarantee limit at the time of such 
designation.
    (6) The FDIC may make exceptions to an entity's debt guarantee 
limit. For example, the FDIC may allow a participating entity to exceed 
the limit determined in paragraph (b)(1) or (b)(2) of this section, 
reduce the limit below the amount determined in paragraph (b)(1) or 
(b)(2) of this section, and/or impose other limits or requirements 
after consultation with the entity's appropriate Federal banking 
agency.
    (7) If a participating entity issues debt identified as guaranteed 
under the debt guarantee program that exceeds its debt guarantee limit, 
it will be subject to assessment increases and enforcement action as 
provided in Sec.  370.6(e).
    (8) A participating entity that is both an insured depository 
institution and a

[[Page 72268]]

direct or indirect subsidiary of a parent participating entity may, 
absent direction by the FDIC to the contrary, increase its debt 
guarantee limit above the limit determined in accordance with 
paragraphs (b)(1) through (b)(6) of this section, provided that:
    (i) The amount of the increase does not exceed the debt guarantee 
limit(s) of one or more of its parent participating entities;
    (ii) The insured depository institution provides prior written 
notice to the FDIC and to each such parent participating entity of the 
amount of the increase, the name of each contributing parent 
participating entity, and the starting and ending dates of the 
increase; and
    (iii) For so long as the institution's debt guarantee limit is 
increased by such amount, the debt guarantee limit of each contributing 
parent participating entity is reduced by an amount corresponding to 
the amount of its contribution to the amount of the increase.
    (9) The debt guarantee limit of the surviving entity of a merger 
between or among eligible entities is equal to the sum of the debt 
guarantee limits of the merging eligible entities calculated on a pro 
forma basis as of the close of business September 30, 2008, absent 
action by the FDIC after consultation with the surviving entity and its 
appropriate Federal banking agency.
    (10) For purposes of determining the amount of guaranteed debt 
outstanding under paragraph (b)(1) of this section, debt issued in a 
foreign currency will be converted into U.S. dollars using the exchange 
rate in effect on the date that the debt is funded.
    (c) Calculation and reporting responsibility. Participating 
entities are responsible for calculating and reporting to the FDIC the 
amount of senior unsecured as defined in Sec.  370.2(e)(1)(i) as of 
September 30, 2008.
    (1) Each participating entity shall calculate the amount of its 
senior unsecured debt outstanding as of the close of business September 
30, 2008, that was scheduled to mature on or before June 30, 2009.
    (2) Each participating entity shall report the calculated amount to 
the FDIC, even if such amount is zero, in an approved format via 
FDICconnect no later than December 5, 2008.
    (3) In each subsequent report to the FDIC concerning debt issuances 
or balances outstanding, each participating entity shall state whether 
it has issued debt identified as FDIC-guaranteed debt that exceeded its 
debt guarantee limit at any time since the previous reporting period.
    (4) The Chief Financial Officer (CFO) or equivalent of each 
participating entity shall certify the accuracy of the information 
reported in each report submitted pursuant to this section.
    (d) Duration of Guarantee. For guaranteed debt issued on or before 
June 30, 2009, the guarantee expires on the earliest of the date of the 
entity's opt-out, if any, the maturity of the debt, or June 30, 2012.
    (e) Debt cannot be issued and identified as guaranteed by the FDIC 
if:
    (1) The proceeds are used to prepay debt that is not FDIC-
guaranteed;
    (2) The issuing entity has previously opted out of the debt 
guarantee program, except as provided in Sec.  370.5(d);
    (3) The issuing entity has had its participation in the debt 
guarantee program terminated by the FDIC;
    (4) The issuing entity has exceeded its debt guarantee limit for 
issuing guaranteed debt as specified in paragraph (b) of this section,
    (5) The debt is owed to an affiliate, an institution-affiliated 
party, insider of the participating entity, or an insider of an 
affiliate or
    (6) The debt does not otherwise meet the requirements of this part 
for FDIC guaranteed debt.
    (f) The FDIC's agreement to include a participating entity's senior 
unsecured debt in the debt guarantee program does not exempt the entity 
from complying with any applicable law including, without limitation, 
Securities and Exchange Commission registration or disclosure 
requirements.
    (g) Long term non-guaranteed debt option. On or before 11:59 p.m., 
Eastern Standard Time, December 5, 2008, a participating entity may 
also notify the FDIC that it has elected to issue senior unsecured non-
guaranteed debt with maturities beyond June 30, 2012, at any time, in 
any amount, and without regard to the guarantee limit. By making this 
election the participating entity agrees to pay to the FDIC the 
nonrefundable fee as provided in Sec.  370.6(f).
    (h) Applications for exceptions and eligibility.
    (1) The following requests require written application to the FDIC 
and the appropriate Federal banking agency of the entity or the 
entity's lead affiliated insured depository institution:
    (i) A request by a participating entity to establish or increase 
its debt guarantee limit,
    (ii) A request by an entity that becomes an eligible entity after 
October 13, 2008, for an increase in its presumptive debt guarantee 
limit of zero,
    (iii) A request by a non-participating surviving entity in a merger 
transaction to opt in to either the debt guarantee program or the 
transaction account guarantee program, and
    (iv) A request by an affiliate of an insured depository institution 
to participate in the debt guarantee program.
    (2) The letter application should describe the details of the 
request, provide a summary of the applicant's strategic operating plan, 
and describe the proposed use of the debt proceeds.
    (3) The factors to be considered by the FDIC in evaluating 
applications filed pursuant to paragraphs (h)(1)(i) through (h)(1)(iii) 
of this section include: The financial condition and supervisory 
history of the eligible/surviving entity. The factors to be considered 
by the FDIC in evaluating applications filed pursuant to paragraph 
(h)(1)(iv) of this section include: The extent of the financial 
activity of the entities within the holding company structure; the 
strength, from a ratings perspective of the issuer of the obligations 
that will be guaranteed; and the size and extent of the activities of 
the organization. The FDIC may consider any other relevant factors and 
may impose any conditions it deems appropriate in granting approval of 
applications filed pursuant to this paragraph.
    (4) Applications required under this paragraph must be in letter 
form and addressed to the Director, Division of Supervision and 
Consumer Protection, Federal Deposit Insurance Corporation, 550 17th 
Street, NW., Washington, DC 20429. Applications made pursuant to 
paragraph (h)(1)(iii) of this section should be filed with the FDIC at 
the time the merger application is filed with the appropriate Federal 
banking agency and should incorporate a copy of the merger application 
therein.
    (5) The effective date of approvals granted by the FDIC under this 
paragraph will be the date of the FDIC's approval letter or, in the 
case of requests filed pursuant to paragraph (h)(1)(iii) of this 
section, the effective date of the merger.
    (i) The ability of a participating entity to issue guaranteed debt 
under the debt guarantee program expires on the earlier of the date of 
the entity's opt-out, if any, or June 30, 2009.


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

[[Page 72269]]

amount defined in 12 CFR 330.1(n)) from October 14, 2008, through the 
earlier of:
    (1) The date of opt-out, if the entity opts out, or
    (2) December 31, 2009.
    (b) In determining whether funds are in a noninterest-bearing 
transaction account for purposes of this section, the FDIC will apply 
its normal rules and procedures under Sec.  360.8 (12 CFR 360.8) for 
determining account balances at a failed insured depository 
institution. Under these procedures, funds may be swept or transferred 
from a noninterest-bearing transaction account to another type of 
deposit or nondeposit account. Unless the funds are in a noninterest-
bearing transaction account after the completion of a sweep under Sec.  
360.8, the funds will not be guaranteed under the transaction account 
guarantee program.
    (c) Notwithstanding paragraph (b) of this section, in the case of 
funds swept from a noninterest-bearing transaction account to a 
noninterest-bearing savings deposit account, the FDIC will treat the 
swept funds as being in a noninterest-bearing transaction account. As a 
result of this treatment, the funds swept from a noninterest-bearing 
transaction account to a noninterest-bearing savings account, as 
defined in 12 CFR 204.2(d), will be guaranteed under the transaction 
account guarantee program.


Sec.  370.5  Participation.

    (a) Initial period. All eligible entities are covered under the 
temporary liquidity guarantee program for the period from October 14, 
2008, through December 5, 2008, unless they opt out on or before 11:59 
p.m., Eastern Standard Time, December 5, 2008, in which case the 
coverage ends on the date of the opt-out.
    (b) The issuance of FDIC-guaranteed debt subject to the protections 
of the debt guarantee program is an affirmative action by a 
participating entity that constitutes its agreement to be:
    (1) Bound by the terms and conditions of the program, including 
without limitation, assessments and the terms of Master Agreement as 
required herein;
    (2) Subject to, and to comply with, any FDIC request to provide 
information relevant to participation in the debt guarantee program and 
to be subject to FDIC on-site reviews as needed, after consultation 
with the appropriate Federal banking agency, to determine compliance 
with the terms and requirements of the debt guarantee program; and
    (3) Bound by the FDIC's decisions, in consultation with the 
appropriate Federal banking agency, regarding the management of the 
temporary liquidity guarantee program.
    (c) Opt-out and opt-in options. 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.
    (d) An eligible entity may elect to opt out of either the debt 
guarantee program or the transaction account guarantee program or both. 
The choice to opt out, once made, is irrevocable, except that, in the 
case of a merger between two eligible entities, the resulting 
institution will have a one-time option to revoke a prior decision to 
opt-out. This option must be requested by application to the FDIC in 
accordance with Sec.  370.3(h). Similarly, the choice to affirmatively 
opt in, as provided in paragraph (c) of this section, once made, is 
irrevocable.
    (e) All eligible entities that are affiliates of a U.S. bank 
holding company or that are affiliates of an eligible entity that is a 
U.S. savings and loan holding company must make the same decision 
regarding continued participation in each guarantee program; failure to 
do so constitutes an opt out by all members of the group.
    (f) Except as provided in Sec.  370.3(g), participating entities 
are not permitted to select which newly issued senior unsecured debt is 
guaranteed debt; all senior unsecured debt issued by a participating 
entity up to its debt guarantee limit must be issued and identified as 
FDIC-guaranteed debt as and when issued.
    (g) Procedures for opting out. The FDIC will provide procedures for 
opting out and for making an affirmative decision to opt in using 
FDIC's secure e-business Web site, 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.
    (h) Disclosures regarding participation in the temporary liquidity 
guarantee program.

    (1) The FDIC will publish on its Web site:
    (i) A list of the eligible entities that have opted out of the debt 
guarantee program, and
    (ii) A list of the eligible entities that have opted out of the 
transaction account guarantee program.
    (2) Each eligible entity that does not opt out of the debt 
guarantee program must include the following disclosure statement in 
all written materials provided to lenders or creditors regarding any 
senior unsecured debt issued by it on or after December 19, 2008 
through June 30, 2009 that is guaranteed under the debt guarantee 
program:

    This debt is guaranteed under the Federal Deposit Insurance 
Corporation's Temporary Liquidity Guarantee Program and is backed by 
the full faith and credit of the United States. The details of the 
FDIC guarantee are provided in the FDIC's regulations, 12 CFR Part 
370, and at the FDIC's Web site, http://www.fdic.gov/tlgp. The 
expiration date of the FDIC's guarantee is the earlier of the 
maturity date of the debt or June 30, 2012.

    (3) Each eligible entity that does not opt out of the debt 
guarantee program must include the following disclosure statement in 
all written materials provided to lenders or creditors regarding any 
senior unsecured debt issued by it on or after December 19, 2008 
through June 30, 2009 that is not guaranteed under the debt guarantee 
program:
    This debt is not guaranteed under the Federal Deposit Insurance 
Corporation's Temporary Liquidity Guarantee Program.
    (4) 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 December 31, 
2009, all noninterest-bearing transaction accounts are fully 
guaranteed by the FDIC for the entire amount in the

[[Page 72270]]

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 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 through December 31, 2009 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.
    (5) Effective date for paragraphs (h)(2), (h)(3) and (h)(4) of this 
section. Paragraphs (h)(2), (h)(3) and (h)(4) of this section are 
effective December 19, 2008. Prior to that date, eligible entities 
should provide adequate disclosures of the substance of paragraphs 
(h)(2), (h)(3) and (h)(4) of this section in a commercially reasonable 
manner.
    (i) Participation By New Eligible Entities And Continued 
Eligibility. The FDIC will determine eligibility in consultation with 
the eligible entity's appropriate Federal banking agency.
    (1) Participation by an entity that is organized after October 13, 
2008 or that becomes an entity described Sec.  370.2(a) after October 
13, 2008 will be: with respect to the transaction account guarantee 
program, effective on the date of the entity's opt-in as described in 
Sec.  370.2(g)(2), and with respect to the debt guarantee program, 
considered by the FDIC on a case-by-case basis in consultation with the 
entity's appropriate Federal banking agency.
    (2) An eligible entity that is not an insured depository 
institution will cease to be eligible to participate in the debt 
guarantee program once it is no longer affiliated with a chartered and 
operating insured depository institution.


Sec.  370.6  Assessments under the Debt Guarantee Program.

    (a) Waiver of assessment for certain initial periods. No eligible 
entity shall pay any assessment associated with the debt guarantee 
program for the period from October 14, 2008 through November 12, 2008. 
An eligible entity that opts out of the program on or before December 
5, 2008 will not pay any assessment under the program.
    (b) Notice to the FDIC. No guaranteed debt shall be issued by a 
participating entity under the FDIC's debt guarantee program unless 
notice of the issuance of such debt and payment of associated 
assessments is provided to the FDIC as required by this section and, 
for guaranteed debt issued after November 21, 2008, the participating 
entity agrees to be bound by the terms of the Master Agreement, as set 
forth on the FDIC's Web site.
    (1) Any eligible entity that does not opt out of the debt guarantee 
program on or before December 5, 2008, as provided in Sec.  370.5, and 
that issues any guaranteed debt during the period from October 14, 2008 
through December 5, 2008 which is still outstanding on December 5, 
2008, shall notify the FDIC of that issuance via the FDIC's e-business 
Web site FDICconnect on or before December 19, 2008, and the entity's 
Chief Financial Officer or equivalent shall certify that the issuances 
identified as FDIC-guaranteed debt outstanding at each point of time 
did not exceed the debt guarantee limit as set forth in Sec.  370.3
    (2) Each participating entity that issues guaranteed debt after 
December 5, 2008, shall notify the FDIC of that issuance via the FDIC's 
e-business Web site FDICconnect within the time period specified by the 
FDIC. The eligible entity's Chief Financial Officer or equivalent shall 
certify that the issuance of guaranteed debt does not exceed the debt 
guarantee limit as set forth in Sec.  370.3.
    (3) The FDIC will provide procedures governing notice to the FDIC 
and certification of guaranteed amount limits for purposes of this 
section.
    (c) Initiation of assessments. Assessments, calculated in 
accordance with paragraph (d) of this section, will accrue, with 
respect to each eligible entity that does not opt out of the debt 
guarantee program on or before December 5, 2008:
    (1) Beginning on November 13, 2008, on all senior unsecured debt, 
as defined in Sec.  370.2(e)(1)(i) (except for overnight debt), issued 
by it on or after October 14, 2008, and on or before December 5, 2008, 
that is still outstanding on December 5, 2008; and
    (2) Beginning on December 6, 2008, on all senior unsecured debt, as 
defined in Sec.  370.2(e)(1)(ii), issued by it on or after December 6, 
2008.
    (d) Amount of assessments for debt within the debt guarantee limit.
    (1) Calculation of assessment. Except as provided in paragraph 
(d)(3) of this section, the amount of assessment will be determined by 
multiplying the amount of FDIC-guaranteed debt times the term of the 
debt (expressed in years) times an annualized assessment rate 
determined in accordance with the following table.

------------------------------------------------------------------------
                                                         The annualized
                                                         assessment rate
              For debt with a maturity of                   (in basis
                                                           points) is
------------------------------------------------------------------------
180 days or less (excluding overnight debt)...........                50
181-364 days..........................................                75
365 days or greater...................................               100
------------------------------------------------------------------------

    (2) If the debt matures after June 30, 2012, June 30, 2012 will be 
used as the maturity date.
    (3) The amount of assessment for an eligible entity, other than an 
insured depository institution, that controls, directly or indirectly, 
or is otherwise affiliated with, at least one insured depository 
institution will be determined by multiplying the amount of FDIC-
guaranteed debt times the term of the debt (expressed in years) times 
an annualized assessment rate determined in accordance with the rates 
set forth in the table in paragraph (d)(1) of this section, except that 
each such rate shall be increased by 10 basis points, if the combined 
assets of all insured depository institutions affiliated with such 
entity constitute less than 50 percent of consolidated holding company 
assets. The comparison of assets for purposes of this paragraph shall 
be determined as of September 30, 2008, except that in the case of an 
entity that becomes an eligible entity after October 13, 2008, the 
comparison of assets shall be determined as of the date that it becomes 
an eligible entity
    (4) Assessment invoicing. Once the participating entity provides 
notice as required in paragraphs (b)(1) and (b)(2) of this section, the 
invoice for the appropriate fee will be automatically generated and 
posted on FDICconnect for the account associated with the participating 
entity, and the time limits for providing payment in paragraph (g) of 
this section will apply.
    (5) No assessment reduction for early retirement of guaranteed 
debt. A participating entity's assessment shall not be reduced if 
guaranteed debt is retired prior to its scheduled maturity date.
    (e) Increased assessments for debt exceeding the debt guarantee 
limit. Any participating entity that issues guaranteed debt represented 
as being guaranteed by the FDIC exceeding its debt guarantee limit as 
set forth in Sec.  370.3(b) shall have its applicable

[[Page 72271]]

assessment rate(s) for all outstanding guaranteed debt increased by 100 
percent for purposes of the calculations in paragraph (d)(1) of this 
section. The FDIC may reduce the assessments under this paragraph upon 
a showing of good cause by the entity. In addition, any entity making 
such a misrepresentation may also be subject to enforcement action 
under 12 U.S.C. 1818, as further described in Sec.  370.11.
    (f) Long term non-guaranteed debt fee. Each participating entity 
that elects to issue long term non-guaranteed debt pursuant to Sec.  
370.3(g) must pay the FDIC a nonrefundable fee equal to 37.5 basis 
points times the amount of the entity's senior unsecured debt, as 
defined in Sec.  370.2(e)(1)(i), that had a maturity date on or before 
June 30, 2009, and was outstanding as of September 30, 2008. If the 
entity had no such debt outstanding as of September 30, 2008, the fee 
will equal 37.5 basis points times the amount of the entity's debt 
guarantee limit established under Sec.  370.3(b).
    (1) The nonrefundable fee will be collected in six equal monthly 
installments.
    (2) An entity electing the nonrefundable fee option will also be 
billed as it issues guaranteed debt under the debt guarantee program, 
and the amounts paid as a nonrefundable fee under this paragraph will 
be applied to offset these bills until the nonrefundable fee is 
exhausted.
    (3) Thereafter, the institution will have to pay additional 
assessments on guaranteed debt as it issues the debt, as otherwise 
required by this section.
    (g) Collection of assessments--ACH Debit.
    (1) Each participating entity shall take all actions necessary to 
allow the Corporation to debit assessments from the participating 
entity's designated deposit account as provided for in Sec.  
327.3(a)(2). The assessment payments of a participating entity that is 
not an insured depository institution shall be debited from the 
designated account of the affiliated insured depository institution it 
selected for FDICconnect access under Sec.  370.5(g).
    (2) Each participating entity shall ensure that funds in an amount 
at least equal to the amount of the assessment are available in the 
designated account for direct debit by the Corporation on the first 
business day after posting of the invoice on FDICconnect. A 
participating entity that is not an insured depository institution 
shall provide the necessary funds for payment of its assessments.
    (3) Failure to take all necessary action or to provide funding to 
allow the Corporation to debit assessments shall be deemed to 
constitute nonpayment of the assessment, and such failure by any 
participating entity will be subject to the penalties for failure to 
timely pay assessments as provided for at Sec.  308.132(c)(3)(v).


Sec.  370.7  Assessment for the Transaction Account Guarantee program.

    (a) Waiver of assessment for certain initial periods. No eligible 
entity shall pay any assessment associated with the transaction account 
guarantee program for the period from October 14, 2008, through 
November 12, 2008. An eligible entity that opts out of the program on 
or before December 5, 2008 will not pay any assessment under the 
program.
    (b) Initiation of assessments. Beginning on November 13, 2008 each 
eligible entity that does not opt out of the transaction account 
guarantee program on or before December 5, 2008 will be required to pay 
the FDIC assessments on all deposit amounts in noninterest-bearing 
transaction accounts calculated in accordance with paragraph (c) of 
this section
    (c) Amount of assessment. 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 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). This assessment shall be in addition to an institution's 
risk-based assessment imposed under Part 327.
    (d) Collection of assessment. Assessments for the transaction 
account guarantee program shall be collected along with a participating 
entity's quarterly deposit insurance payment as provided in Sec.  
327.3, and subject to penalties for failure to timely pay assessments 
as referenced in Sec.  308.132(c)(3)(v).


Sec.  370.8  Systemic risk emergency special assessment to recover 
loss.

    To the extent that the assessments provided under Sec.  370.6 or 
Sec.  370.7 are insufficient to cover any loss or expenses arising from 
the temporary liquidity guarantee program, the Corporation shall impose 
an emergency special assessment on insured depository institutions as 
provided under 12 U.S.C. 1823(c)(4)(G)(ii) of the FDI Act.


Sec.  370.9  Recordkeeping requirements.

    The FDIC will establish procedures, require reports, and require 
participating entities to provide and preserve any information needed 
for the operation of this program.


Sec.  370.10  Oversight.

    (a) Participating entities are subject to the FDIC's oversight 
regarding compliance with the terms of the temporary liquidity 
guarantee program.
    (b) A participating entity's default in the payment of any debt may 
be considered an unsafe or unsound practice and may result in 
enforcement action as described in Sec.  370.11.
    (c) In general, with respect to a participating entity that is an 
insured depository institution, the FDIC shall consider the existence 
of conditions which rise to an obligation to pay on its guarantee as 
providing grounds for the appointment of the FDIC as conservator or 
receiver under Section 11(c)(5)(C) and (F) of the Federal Deposit 
Insurance Act, 12 U.S.C 1821(c)(5)(C) and (F).
    (d) By issuing guaranteed debt, all participating entities agree, 
for the duration of the temporary liquidity guarantee program, to be 
subject to the FDIC's authority to determine compliance with the 
provisions and requirements of the program.


Sec.  370.11  Enforcement mechanisms.

    (a) Termination of Participation. If the FDIC, in its discretion, 
after consultation with the participating entity's appropriate Federal 
banking agency, determines that the participating entity should no 
longer be permitted to continue to participate in the temporary 
liquidity guarantee program, the FDIC will inform the entity that it 
will no longer be provided the protections of the temporary liquidity 
guarantee program.
    (1) Termination of participation in the temporary liquidity 
guarantee program will solely have prospective effect. All previously 
issued guaranteed debt will continue to be guaranteed as set forth in 
this part.
    (2) The FDIC will work with the participating entity and its 
appropriate Federal banking agency to assure that the entity notifies 
its counterparties or creditors that subsequent debt issuances are not 
covered by the temporary liquidity guarantee program.
    (b) Enforcement Actions. Violating any provision of the temporary 
liquidity guarantee program constitutes a violation of a regulation and 
may subject the participating entity and its

[[Page 72272]]

institution-affiliated parties to enforcement actions under Section 8 
of the FDI Act (12 U.S.C. 1818), including, for example, assessment of 
civil money penalties under section 8(i) of the FDI Act (12 U.S.C. 
1818(i)), removal and prohibition orders under section 8(e) of the FDI 
Act (12 U.S.C. 1818(e)), and cease and desist orders under section 8(b) 
of the FDI Act (12 U.S.C. 1818(b)). The violation of any provision of 
the program by an insured depository institution also constitutes 
grounds for terminating the institution's deposit insurance under 
section 8(a)(2) of the FDI Act (12 U.S.C. 1818(a)(2)). The appropriate 
Federal banking agency for the participating entity will consult with 
the FDIC in enforcing the provisions of this part. The appropriate 
Federal banking agency and the FDIC also have enforcement authority 
under section 18(a)(4)(C) of the FDI Act (12 U.S.C. 1828(a)(4)(C)) to 
pursue an enforcement action if a person knowingly misrepresents that 
any deposit liability, obligation, certificate, or share is insured 
when it is not in fact insured.


Sec.  370.12  Payment on the guarantee.

    (a) Claims for Deposits in Noninterest-bearing Transaction 
Accounts. (1) In general. The FDIC will pay the guaranteed claims of 
depositors for funds in a noninterest-bearing transaction account in an 
insured depository institution that is a participating entity as soon 
as possible upon the failure of the entity. Unless otherwise provided 
for in this paragraph (a), the guaranteed claims of depositors who hold 
noninterest-bearing transaction deposit accounts in such entities will 
be paid in accordance with 12 U.S.C. 1821(f) and 12 CFR parts 330 and 
370.
    (2) Subrogation rights of FDIC. Upon payment of such claims, the 
FDIC will be subrogated to the claims of depositors in accordance with 
12 U.S.C. 1821(g).
    (3) Review of final determination. The final determination of the 
amount guaranteed shall be considered a final agency action of the FDIC 
reviewable in accordance with Chapter 7 of Title 5, by the United 
States district court for the federal judicial district where the 
principal place of business of the depository institution is located. 
Any request for review of the final determination shall be filed with 
the appropriate district court not later than sixty (60) days of the 
date on which the final determination is issued.
    (b) Payments on Guaranteed Debt of participating entities in 
default. (1) In general. The FDIC's obligation to pay holders of FDIC-
guaranteed debt issued by a participating entity shall arise upon the 
uncured failure of such entity to make a timely payment of principal or 
interest as required under the debt instrument (a ``payment default'').
    (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 (without regard to default or penalty 
provisions). The FDIC may in its discretion, at any time after June 30, 
2012, 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.
    (3) Demand for payment; proofs of claim. (i) Payment through 
authorized representative. Except as provided in paragraph (b)(3)(ii) 
of this section, a demand for payment on the guaranteed amount shall be 
made on behalf of all holders of debt subject to a payment default that 
is made by a duly authorized representative of such debtholders if the 
issuer shall have elected to provide for one in the Master Agreement 
submitted pursuant Sec.  370.6(b). Such demand must be accompanied by a 
proof of claim, which shall include evidence, to the extent not 
previously provided in the Master Agreement, in form and content 
satisfactory to the FDIC, of : the representative's financial and 
organizational capacity to act as representative; the representative's 
exclusive authority to act on behalf each and every debtholder and its 
fiduciary responsibility to the debtholder when acting as such, as 
established by the terms of the debt instrument; the occurrence of a 
payment default; and the authority to make an assignment of each 
debtholder's right, title, and interest in the FDIC-guaranteed debt to 
the FDIC and to effect the transfer to the FDIC of each debtholder's 
claim in any insolvency proceeding. This assignment shall include the 
right of the FDIC to receive any and all distributions on the debt from 
the proceeds of the receivership or bankruptcy estate. If any holder of 
the FDIC-guaranteed debt has received any distribution from the 
receivership or bankruptcy estate prior to the FDIC's payment under the 
guarantee, the guaranteed amount paid by the FDIC shall be reduced by 
the amount the holder has received in the distribution from the 
receivership or bankruptcy estate. All such demands must be made within 
60 days of the occurrence of the payment default upon which the demand 
is based. Upon receipt of a conforming proof of claim, if timely filed, 
the FDIC will make a payment of the amount guaranteed.
    (ii) Individual debtholders: Individual debtholders who are not 
represented by an authorized representative provided for in a Master 
Agreement submitted pursuant to Sec.  370.6(b), or who elect not to be 
represented by such authorized representative, may make demand for 
payment of the guaranteed amount upon the FDIC. The FDIC may reject a 
demand made by a person who the FDIC determines has not opted out of 
representation by an authorized representative. In order to be 
considered for payment, such demand must be accompanied by a proof of 
claim, which shall include evidence in form and content satisfactory to 
the FDIC of: the occurrence of a payment default; and the claimant's 
ownership of the FDIC-guaranteed debt obligation. The demand also must 
be accompanied by an assignment, in form and content satisfactory to 
the FDIC, of the debtholder's rights, title, and interest in the FDIC-
guaranteed debt to the FDIC and the transfer to the FDIC of the 
debtholder's claim in any insolvency proceeding. This assignment shall 
include the right of the FDIC to receive any and all distributions on 
the debt from the proceeds of the receivership or bankruptcy estate. If 
any holder of the FDIC-guaranteed debt has received any distribution 
from the receivership or bankruptcy estate prior to the FDIC's payment 
under the guarantee, the guaranteed amount paid by the FDIC shall be 
reduced by the amount the holder has received in the distribution from 
the receivership or bankruptcy estate. All such demands must be made 
within 60 days of the occurrence of the payment default upon which the 
demand is based. Upon receipt of a conforming proof of claim, if timely 
filed, the FDIC will make a payment of the amount guaranteed.
    (iii) Any demand under this subsection shall be made in writing and 
directed to the Director, Division of Resolutions and Receiverships, 
Federal Deposit Insurance Corporation, Washington, DC., and must 
include all supporting evidence as set forth in the previous 
subsections, and shall certify to the accuracy thereof
    (iv) Demand period. Failure of the holder of the FDIC-guaranteed 
debt or an authorized representative to make demand for payment within 
sixty (60) days of the occurrence of payment default will deprive the 
holder of the FDIC-guaranteed debt of all further

[[Page 72273]]

rights and remedies with respect to the guarantee claim.
    (4) Subrogation. Upon payment under either method under paragraph 
(b)(2) of this section, the FDIC will be subrogated to the rights of 
any debtholder against the issuer, including in respect of any 
insolvency proceeding, to the extent of the payments made under the 
guarantee.
    (5) Release and satisfaction. Payment under paragraph (b)(2) of 
this section shall constitute, to the extent of payments made, 
satisfaction of all FDIC obligations under the debt guarantee program 
with respect to that debtholder or holders. Acceptance of any such 
payments shall constitute a release of any liability of the FDIC under 
the debt guarantee program with respect to those payments. Each 
participating entity agrees and acknowledges that it shall be indebted 
to the FDIC for any payments made under these provisions (including 
amounts paid to a participating entity in return for its assumption of 
a guaranteed debt issuance) and shall honor immediately a demand by the 
FDIC for reimbursement therefore. A participating entity's undertakings 
in this regard shall be evidenced and governed by the ``Master 
Agreement'' it shall execute and submit, in connection with its 
election pursuant to Sec.  370.6(b) to participate in the Debt 
Guarantee Program.
    (6) Final determination; review of final determination. The FDIC's 
determination under this paragraph shall be a final administrative 
determination subject to judicial review. The holder of FDIC-guaranteed 
debt shall have the right to seek judicial review of the FDIC's final 
determination in the United States District Court for the District of 
Columbia or the United States District Court for the federal district 
where the issuer's principal place of business was located. Failure of 
the holder of the FDIC-guaranteed debt to seek such judicial review 
within sixty (60) days of the date of the rendering of the final 
determination will deprive the holder of the FDIC-guaranteed debt of 
all further rights and remedies with respect to the guarantee claim.

    By order of the Board of Directors.

    Dated at Washington, DC, this 21st day of November 2008.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E8-28184 Filed 11-21-08; 4:15 pm]

BILLING CODE 6714-01-P