April 13, 2010
Authored by: Robert Klingler
On April 13, 2010, the FDIC extended the Transaction Account Guarantee (TAG) portion of the Temporary Liquidity Guarantee Program for another six months, through December 31, 2010, and preserved the flexibility to further extend the Transaction Account Guarantee through December 31, 2011 without further rule making. In addition to extending the expiration date of the TAG program, the FDIC’s final rule (1) maintains the current assessment fees for participation, except that the calculation will now be based on an average daily balance rather than quarter-end balances; (2) reduces the maximum interest rate limit for NOW accounts guaranteed under the program from 50 basis points to 25 basis points; and (3) provides an opportunity for participating institutions to opt out of the program as of July 1, 2010.
All currently participating institutions have until April 30, 2010 to determine whether to continue in the program or opt out of the program. Attorneys in Bryan Cave’s financial institutions practice can discuss the advantages and disadvantages of opting out for particular financial institutions.
Six-Month Extension (and Right to Extend Further)
Funds held in non-interest bearing demand deposit accounts (as well as NOW accounts that are obligated to pay less than 25 basis points and IOLTA accounts) will be fully guaranteed by the FDIC for participating entities through December 31, 2010.
If the FDIC finds a continuing need for the TAG program, the FDIC Board may, at its discretion, elect to further extend the TAG program through December 31, 2011. The FDIC will announce such an extension, if warranted, no later than October 29, 2010. In the event the TAG program is further extended, participating institutions will be obligated to remain in the program during that extension. (In other words, no additional opportunities to opt out after April 30, 2010 are contemplated.)
Currently, nearly 6,400 insured depository institutions, representing approximately 80% of all insured depository institutions, continue to participate in the TAG program, holding almost $340 billion in deposits in accounts currently subject to the FDIC’s guarantee. Of those deposits, $266 billion represented amounts above the standard insurance limit and are thus only guaranteed through the TAG program.
The FDIC expects that the projected revenues from a six month extension could cover the projected costs for the duration of the extension. However, due to assumptions regarding which institutions may choose to now opt-out, the FDIC expects projections will likely show a small loss due to the extension, although the overall Temporary Liquidity Guarantee Program is still expected to be a profitable program for the FDIC. Accordingly, the FDIC decided not to increase the current tiered-assessment structure. The FDIC further believes that maintaining the current pricing will enable most participating institutions to remain in the program, thereby providing a greater positive stimulus to the nation’s economic recovery.
The amount of the assessment will continue to depend on the institution’s Risk Category rating assigned with respect to regular FDIC assessments. The fee will continue to be assessed only on the amount of deposits that exceed the existing deposit insurance limits. Institutions in Risk Category I (generally well-capitalized institutions with composite CAMELS 1 or 2 ratings) will pay an annualized assessment rate of 15 basis points. Institutions in Risk Category II (generally adequately capitalized institutions with composite CAMELS 3 or better) will pay an annualized assessment rate of 20 basis points. Institutions in Risk Category III or IV (generally under capitalized or composite CAMELS 4 or 5) will pay an annualized assessment rate of 25 basis points.
In light of the volatility of the amounts held in non-interest bearing demand deposit accounts, the FDIC is altering the calculation of the assessment, starting with the assessment for the third quarter ending September 30, 2010, to be based on average daily balance amounts. Accordingly, the total dollar amount of TAG-qualifying accounts and the total number of accounts must be reported as an average daily balance in the September 20, 2010 Call Report. The amount to be reported as the daily average balance is the total dollar amount of the non-interest bearing transaction accounts of more than $250,000 for each calendar day during the quarter divided by the number of calendar days in the quarter. Institutions that do not opt out of the TAG program must establish procedures to gather the necessary daily data beginning on July 1, 2010.
While this modification is likely to have minimal impact for those institutions whose deposits assessments are already calculated on an average daily balance basis (generally those with total assets of more than $1 billion), this modification could create a significant administrative burden on those institutions that do not currently employ average daily balance reporting.
Right to Opt-Out
Currently participating institutions are being given (another) one-time, irrevocable, opportunity to affirmatively opt out of the TAG program. Institutions that previously opted out of the TAG program may not change their election at this time.
If a participating institution desires to remain in the TAG program, no action is required. However, such an institution should update, by May 20, 2010, its lobby and website disclosures to reflect the December 31, 2010 extension. In the event the TAG program is further extended, participating institutions will be obligated to remain in the program during that extension, and further update their disclosures.
If a participating institution desires to opt out, it must send an e-mail to email@example.com no later than 11:59 p.m., Eastern Tine, April 30, 2010 that meets all the requirements of 12 CFR 370.5(g)(3), and post a prominent lobby and website notice notifying depositors that funds held in noninterest-bearing transaction accounts will not longer be fully guaranteed. 12 CFR 370.5(g)(2) generally requires the e-mail to have a subject line of “TLGP Request to Opt Out – Cert. No. ___” and to include:
- Institution Name;
- FDIC Certificate number;
- City, State and ZIP;
- Name, telephone number and e-mail address of contact person;
- A statement that the institution is opting out of the Transaction Account Guarantee program effective July 1, 2010; and
- Confirmation that the institution will, no later than May 20, 2010, provide the required lobby and website disclosure.
The FDIC states that it will send an e-mail reply confirming receipt of each institution’s opt-out election upon receipt of a conforming e-mail.
Lobby and Website Disclosure
The FDIC regulations require that each institution that offers non-interest bearing transaction accounts 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. The regulations require that the disclosure be provided in simple, readily understandable text, and provide the following samples:
For Participating Institutions
[Institution Name] is participating in the FDIC’s Transaction Account Guarantee Program. Under that program, through December 31, 2010, 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 Participating Institutions that Elect to Opt out of the Extended Transaction Account Guaranty Program Effective on July 1, 2010
Beginning July 1, 2010 [Institution Name] will no longer participate in the FDIC’s Transaction Account Guarantee Program. Thus, after June 30, 2010, funds held in noninterest-bearing transaction accounts will no longer be guaranteed in full under the Transaction Account Guarantee Program, but will be insured up to $250,000 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 for up to $250,000 under the FDIC’s general deposit insurance rules.