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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
The Temporary Liquidity Guarantee Program, or TGLP, is an FDIC-run program which guarantees the recently issued senior unsecured debt of banks, thrifts, and some holding companies, for all companies accepted into the program.
The program was designed to encourage liquidity in the interbank lending market, after such lending ground to a halt during the 2008 financial crisis. By guaranteeing the debt of participants in the program, the FDIC gives these participants an easy way to tap credit markets at low cost, and the loans are considered low-risk because they are backed by the United States Government.
In addition, the program provides a complete guarantee of all deposit transaction accounts of any size as long as they are non-interest bearing. The Program was created on the 21st of November 2008 to strengthen the markets during the 2008 Financial Crisis.[1]
Overview
The Temporary Liquidity Guarantee Program is made up of two main components the Debt Guarantee Program and the Transaction Amount Guarantee Program. Both are aimed at increasing liquidity in the market and do so by increasing FDIC guarantees. Because the goal of the program is to provide temporary credit, the FDIC program guarantees noninterest bearing transaction accounts until December 31, 2009.
Debt Guarantee Program
This portion of the TGLP guarantees all recently issued senior unsecured debt for companies participating in the program. The goal is to increase liquidity without encouraging complex funding structures or providing protection to lenders who make risky loans.[2]
Transaction Amount Guarantee Program
The Transaction Amount Guarantee Program or TAGP, provides a full guarantee until December 31 2009 on all noninterest bearing transaction accounts which are above the existing $250,000 limit. Noninterest bearing transaction accounts, or checking accounts or demand deposit accounts, are seen as noninvestment accounts and so a full guarantee would make them essentially no risk.
Opt Out Option
Financial Institutions are allowed to opt out of the either or both the Debt Guarantee Program or the Transaction Account Guarantee Program. While most institution have taken advantage of the Programs there is a publicly available list of companies which have opted out in order to avoid the increase in government oversight and regulation. [3] Institutions which chose not to opt out must report the number and amount of senior unsecured debt which are outstanding. In addition, all participating institutions must report all FDIC guaranteed debt, even if they have none, along with a certification that the guaranteed debt did not exceed the institutions guaranteed amount limit.[4]
References
- ↑ Federal Deposit Insurance Corporation (FDIC): Temporary Liquidity Guarantee Program
- ↑ Federal Deposit Insurance Corporation (FDIC): Temporary Liquidity Guarantee Program Frequently Asked Questions
- ↑ Federal Deposit Insurance Corporation (FDIC): List of Institutions which have Opted Out
- ↑ Davis Polk & Wardwell: Client Newsflash "FDIC Extends Opt-out Period for Temporary Liquidity Guarantee Program until December 5th"
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