FDIC Extends and Amends Transaction Account Guarantee Program

At its board of directors meeting on April 13, the Federal Deposit Insurance Corporation ("FDIC") acted to extend the duration, and modify the terms, of the Transaction Account Guarantee Program ("TAG"). The TAG had been scheduled to expire on June 30, 2010. Participating insured depository institutions ("IDI") must decide by Friday, April 30, whether they wish to opt out of the extension of the TAG. All IDIs currently participating in TAG will need to revise their account disclosures, whether or not they choose to continue in the program. In addition to the extension of the term, the FDIC also amended certain account eligibility and reporting elements of the TAG.

Background

The TAG was established by the FDIC in October, 2008, as part of the Federal government's efforts to address the serious disruptions then afflicting the financial services sector. Under the TAG, the FDIC guarantees all funds held at participating IDIs (beyond the standard maximum deposit insurance limit) in qualifying non-interest bearing transaction accounts (and certain low interest rate NOW accounts). The TAG sought to address concerns that, in light of the economic uncertainty then prevailing, large numbers of account holders might withdraw balances in excess of the standard maximum deposit insurance limit. Such withdrawals could have further destabilized the financial markets and impaired the funding structure of smaller banks which rely on such deposits. Initially scheduled to expire on December 31, 2009, the TAG has already been extended once by the FDIC to its current expiry on June 30, 2010.

The FDIC indicates that the TAG has been widely accepted. Approximately 80% of IDIs have chosen to participate in the TAG. At the end of 2009, participating IDIs held an estimated $266 billion in deposits above the insured deposit limit and guaranteed by the FDIC under TAG.

In taking this action, the FDIC indicated that despite overall improved economic conditions, it regarded extension of the TAG as necessary because lingering effects of the financial crisis have spread from large, systemically important banks to IDIs of all sizes. Particular concern was expressed regarding community banks and savings institutions if the TAG were allowed to expire in the current economic circumstances.

New Extension and Amendments

The interim rule adopted by the FDIC extends the expiry date of TAG to December 31, 2010. It also contains authority for the FDIC to extend the expiry date for...