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Should Transaction Account Guarantee Program Be Continued?

FDIC Proposes Continuing Transaction Account Guarantee Program, At a Price

 

                 Comments are due by July 30, 2009, and may be submitted by going to the FDIC Website and following the instructions there: http://www.FDIC.gov/regulations/laws/federal/notices.html)

     The FDIC has proposed to extend for six months the Transaction Account Guarantee Program under its Temporary Liquidity Guarantee Program – at a higher premium. Comments on the proposal are due July 30 What do you think?

     As background, banks that signed up to participate last December pay a 10 basis point (b.p.) annual premium for unlimited FDIC coverage of deposit accounts that pay no more than 50 b.p. annual interest. The program is scheduled to terminate at the end of this year, 12/31/09. To assure that public confidence in banks has been restored, the FDIC is considering – but has not committed to – extending the program through next June.

     As proposed, current participants in the program could opt out of the six-month extension, but non-participants would not be allowed to opt in. Since the program has been losing money at a 10 b.p. annual premium, if it is extended then the premium would rise to 25 b.p. (i.e., 12½ b.p for the six months). The proposal asks whether the interest rate limit on covered deposits should be lowered to 25 b.p., considering that market interest rates are much lower than when the program started.

      After the program was originally instituted, a change in federal law increased the FDIC's flexibility in assessing premiums. As a result, should program costs exceed its revenues, the FDIC would no longer be forced to require non-participants to cover excess program costs.

 

               Notice may also be sent by e-mail (Comments@FDIC.gov) but must include the identification reference:  RIN 3064-AD37.  Comments may also be mailed to Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

 

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