On November 21, 2008, the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program (TLGP or “the Program”). The TLGP has two primary components:

• The Debt Guarantee Program (DGP), pursuant to which the Federal Deposit Insurance Corporation (FDIC) will temporarily guarantee the payment of newly-issued senior unsecured debt; and
• The Transaction Account Guarantee Program (TAGP), pursuant to which the FDIC will temporarily guarantee noninterest-bearing transaction accounts.
   

Some of the highlights of the final TLGP rule are set forth below:

General

• Eligible Entities (as defined below) must inform the FDIC no later than 11:59 p.m. EST on December 5, 2008, whether they will opt-out of either or both TLGP components. If they elect to participate in the DGP, they must report their debt issuance cap under that program (calculated as of September 30, 2008) to the FDIC on or before December 5, 2008.
• If an Eligible Entity opts out of the TLGP, the FDIC’s guarantee of its newly-issued senior unsecured debt and noninterest-bearing transaction deposit accounts will expire at the earlier of 11:59 pm EST on December 5, 2008, or at the time of the FDIC’s receipt of the Eligible Entity’s opt-out decision.
• An Eligible Entity’s decision to opt out of either component of the TLGP will be publicly available. The FDIC will post on its website a list of those entities that have opted out of either or both components of the TLGP.
• The FDIC may impose an emergency systemic risk assessment on insured depository institutions if the fees and assessments collected under the TLGP are insufficient to cover any loss incurred under the TLGP. These fees will be assessed against all entities including those that do not participate in the TLGP.
• Participating entities availing themselves of the TLGP are subject to the FDIC’s oversight regarding compliance with the terms of the Program.

Transaction Account Guarantee Program

• The FDIC is providing a temporary guarantee for funds held at FDIC-insured depository institutions in noninterest-bearing transaction accounts above the existing $250,000 deposit insurance limit. These accounts include: (i) lawyer trust accounts where interest does not accrue to the account owner (IOLTA); and (ii) NOW accounts with interest rates no higher than 0.5 percent.
• Whether an Eligible Entity remains in the TAGP, it must disclose in writing at its main office, at all branches and on its website (if deposits are taken at the website) its decision to participate in or opt-out of the TAGP. The FDIC has adopted model disclosure language.
• If the institution uses sweep arrangements or takes other actions that result in funds in a noninterest-bearing transaction account being transferred to or reclassified as an interest-bearing account or a nontransaction account, this must be disclosed to affected customers and those customers must be advised in writing that such actions will void the FDIC guarantee.
• Beginning on November 13, 2008, institutions will 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. An Eligible Entity that opts out prior to December 5, 2008, will not pay any assessments under the TAGP.

Debt Guarantee Program

• The FDIC will temporarily guarantee newly issued senior unsecured debt of a participating Eligible Entity in a total amount up to 125 percent of the par or face value of senior unsecured debt outstanding, excluding debt extended to affiliates, as of September 30, 2008, that is scheduled to mature before June 30, 2009.
• For Eligible Entities that are depositary institutions and had no senior unsecured debt or only had federal funds purchased at September 30, 2008, the debt issuance cap is 2 percent of consolidated total liabilities as of September 30, 2008.
• Eligible Entities that are not depositary institutions and had no senior unsecured debt at September 30, 2008, may apply to the FDIC to have some debt covered under the DGP.
• Short-term senior unsecured debt with a maturity of 30 days or less issued after December 5, 2008, is excluded from the DGP.
• The debt cap will be calculated as of September 30, 2008, including debt with 30-day or less maturity issued at that point even though such debt is not guaranteed if issued after December 5, 2008.
• If an Eligible Entity remains in the DGP, it must include the FDIC’s model disclosure statement in all written materials provided to creditors regarding any debt covered by the guarantee. An Eligible Entity participating in the DGP must provide a model disclosure statement with senior unsecured debt that is not covered by the guarantee.
• Guaranteed debt may not be used to prepay nonguaranteed debt.
• Beginning on December 6, 2008, a participating Eligible Entity will be assessed fees for debt guarantee coverage. All eligible debt (i) issued on or after October 14, 2008 (except for overnight debt), and on or before December 5, 2008 (and still outstanding on December 5, 2008); and (ii) all eligible debt issued on or after December 6, 2008, through June 30, 2009, will be charged an annualized fee on a sliding scale from 50 to 100 basis points per annum depending on maturity of debt. A 10 basis point surcharge will be assessed against holding companies whose insured depository institutions control less than 50 percent of the parent company’s assets. The fee will be calculated for the maturity period of that debt or until June 30, 2012, whichever is earlier.
• The FDIC will guarantee the timely payment of principal and interest. The guaranteed debt is backed by “full faith and credit of the United States.”

Eligible Entities

The following entities are eligible to participate in the TLGP subject to any restrictions that might be imposed by the FDIC in consultation with the institution’s primary regulator:

• FDIC-insured depository institutions;
• any U.S. bank holding company or financial holding company that has at least one insured depository institution subsidiary;
• any U.S. savings and loan holding company that either (i) engages only in activities that are permissible for financial holding companies to conduct under Section (4)(k) of the Bank Holding Company Act of 1956 (BHCA), or (ii) has at least one insured depository institution subsidiary that is the subject of an application that was pending on October 13, 2008, pursuant to Section 4(c)(8) of the BHCA; or
• any other affiliate of an insured depositary institution approved by the FDIC after consultation with the appropriate federal banking agency, which affiliate will be deemed to have opted into the DGP (Eligible Entities).
   

Opt-Out and Election Form

Eligible Entities must inform the FDIC no later than 11:59 p.m. EST on December 5, 2008, whether they will opt-out of either or both programs under TLGP. The election must be made on the FDIC’s e-business website, FDICconnect.

All Eligible Entities within a holding company structure must make the same decision regarding participation in each component of the TLGP. If they do not, none of the members will be eligible to participate in that component of the TLGP.

An Eligible Entity’s decision to opt out of either component of the TLGP will be publicly available. The FDIC will post on its website a list of those entities that have opted out of either or both components of the TLGP.

The FDIC will not, however, post a list of the participating entities. All guarantees will terminate immediately upon the filing of an opt-out election.

An Eligible Entity electing to remain in the DGP must provide debt issuance cap information as described below (Debt Guarantee Program - Guarantee Limits), certified by its CFO, on the FDIC’s election form by December 5, 2008. The submission of cap information for covered debt will also be confirmation of the electing Eligible Entity’s agreement with the terms of the master agreement described below (Debt Guarantee Program -Master Agreement).

Debt Guarantee Program

General. Under the DGP, the FDIC will temporarily guarantee all newly-issued senior unsecured debt, up to prescribed limits, that is issued by participating entities on or after October 14, 2008, through and including June 30, 2009. The guarantee will expire upon the earliest to occur of (1) the date the issuer opts out, (2) the maturity of the debt, or (3) June 30, 2012.

The FDIC may allow an affiliate of an electing depository institution to take part in the DGP. The FDIC must receive a written request from the affiliate and a positive recommendation from the appropriate federal banking agency. After consultation with appropriate federal banking agency, the FDIC may determine in its discretion that the affiliate shall not be permitted to participate in the TLGP.

As described below (Payment of Claims by the FDIC Pursuant to the Debt Guarantee Program), the FDIC guarantee covers timely payment of interest and principal. The guaranteed debt is backed by the full faith and credit of the United States.

The guaranteed debt has been assigned a 20 percent risk weighting.

Definition of Senior Guaranteed Debt. The final rule contains a nonexclusive list of senior unsecured debt guaranteed by the FDIC. This list includes: federal funds purchased; promissory notes; commercial paper; unsubordinated unsecured notes; U.S. dollar denominated certificates of deposit owed to either 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 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 senior unsecured debt must (i) be noncontingent, (ii) be evidenced by a written agreement (including a trade confirmation), (iii) contain a specified and fixed principal amount be paid in full on demand or on a date certain, (iv) not be subordinated to another liability, (v) be noncontingent and contain no embedded options, forwards, swaps or other derivatives, and (vi) (after December 5, 2008) be issued with a stated maturity of more than 30 days.

The debt may pay interest at a fixed or floating rate, but the floating interest rate must be based on a single index of a Treasury bill rate, the prime rate, or the London Interbank Offered Rate (LIBOR).

To avoid the creation of innovative, exotic or complex funding structures, the DGP excludes from its coverage such items as:

• any obligation with a stated maturity of one month;
• obligations from guarantees or other contingent liabilities;
• derivatives;
• derivative-linked products;
• debt that is paired or bundled with any other security;
• convertible debt;
• capital notes;
• the unsecured portion of otherwise secured debt;
• negotiable certificates of deposit;
• deposits in foreign currency and or other foreign deposits (unless expressly included as covered senior unsecured debt);
• revolving credit agreements;
• structured notes;
• instruments that are used for trade credit;
• retail debt securities (securities marketed to retail investors); and
• any funds that regardless of form are swept from individual, partnership or corporate accounts held at insured depository institutions.

Loans from affiliates, including parents and subsidiaries, or to institution-affiliated parties, including controlling shareholders, directors and officers, are also excluded from the DGP. Debt that is contractually subordinated to other debt of the entity is not eligible for the Program.

Under the final rule, the proceeds from the issuance of FDIC-guaranteed debt may be issued to prepay other FDIC-guaranteed debt, but may not be used to prepay outstanding nonguaranteed debt.

Guarantee Term. Eligible debt must be issued on or before June 30, 2009. The FDIC will provide the guarantee coverage for eligible debt until the earlier of the maturity date of the debt or 11:59 pm EST on June 30, 2012, regardless of whether the liability has matured at that time.

If an Eligible Entity chooses to opt out of the DGP, the guarantee will terminate on the earlier of 11:59 pm EST on December 5, 2008, or at the time of the Eligible Entity’s opt-out decision.

Guarantee Limits. The FDIC will temporarily guarantee newly issued unsecured debt in a total amount up to 125 percent of the par or face value of senior unsecured debt outstanding, excluding debt extended to affiliates, as of September 30, 2008, that is scheduled to mature before June 30, 2009. For a holding company with multiple participants, the maximum guaranteed amount must be calculated for each individual entity.

In calculating the September 30, 2008, debt cap, an Eligible Entity should include debt with maturities of 30 days or less outstanding at September 30, 2008, even though such debt will no longer be guaranteed if issued after the opt-out date—11:59 p.m. EST on December 5, 2008.

If an electing depository institution did not have any senior unsecured debt (other than federal funds) outstanding on September 30, 2009, its debt issuance cap will be 2 percent of its total outstanding liabilities.

Eligible Entities that are not depositary institutions and had no senior unsecured debt at September 30, 2008, may apply to the FDIC to have some debt covered under the DGP.

The FDIC may also grant a participating entity authority to temporarily exceed the 125 percent limitation or it may limit a participating entity to less than 125 percent.

The 125 percent limit may be adjusted for certain entities if the FDIC, in consultation with any appropriate federal banking agency, determines it necessary.

Each electing Eligible Entity must calculate its outstanding senior unsecured debt as of September 30, 2008, and provide that information (even if the amount of the senior unsecured debt is zero) to the FDIC on the election form to be filed on or before December 5, 2008. All reports must contain a certification from the institution’s CFO (or equivalent) certifying the accuracy of the information reported.

A participating Eligible Entity must notify the FDIC by December 19, 2008, of each issuance of guaranteed debt between October 14, 2008 and December 5, 2008 that is still outstanding at December 5, 2008. This notification must include the CFO’s certification.

After December 5, 2008, a participating entity must notify the FDIC of each guaranteed debt issuance via FDICconnect. The CFO must certify that the issuance does not exceed the debt limit.

A participating entity may not represent that its debt is guaranteed by the FDIC if it does not comply with the rules governing the DGP. If the issuing entity has opted out of the DGP, it may no longer represent that its newly-issued debt is guaranteed by the FDIC.

Similarly, once the 125 percent limit has been reached, the entity may not represent that any additional debt is guaranteed by the FDIC. Moreover, it must specifically disclose that such debt is not guaranteed, using the FDIC model disclosure form.

If an Eligible Entity does not opt out, all newly-issued senior unsecured debt, up to the debt issuance cap, will become guaranteed as and when issued. Generally, only after the participant has issued guaranteed debt up to the cap amount may it issue senior unsecured nonguaranteed debt. However, a participant may issue long-term (matures after June 30, 2012) nonguaranteed debt at any time if it has elected to participate in, and is paying the special fee for, the long-term nonguaranteed debt program described below (Fees - Guaranteed Debt - Issuance of Long-Term Nonguaranteed Debt).

Combining Debt Cap. An insured depository institution may combine its debt limit with that of a direct or indirect parent participant. Participants interested in combining issuance caps must make a written request to the FDIC and the participant parent entity. Any use of a parent’s capacity to issue guaranteed debt will reduce the amount available to the parent under its debt cap.

Master Agreement. An Eligible Entity participating in the DGP must execute a master agreement (designed to facilitate the payment guarantee by the FDIC). The agreement is available at the FDIC’s website. An executed copy (signed by the CFO) must be provided to the FDIC no later than 10 business days after an Eligible Entity elects to participate in the DGP. In addition a completed executed copy of the master agreement signature page must be submitted to the FDIC within five business days of the election. The master agreement includes the following terms:

• the Eligible Entity is required to provide notice to the FDIC within one business day of any failure to pay interest on or principal of any indebtedness;

the guaranteed debt documents must include the following terms:

• appointment of a representative who will prosecute claims for payment under the guarantee for all creditors participating in the debt,
• the representative must give the FDIC notice within one business day of any payment default by the participant,
• the assignment of the debt instrument to the FDIC when the FDIC commences making guarantee payments,
• the surrender of the debt instrument if the FDIC repays the debt in full while making guarantee payments, and
• the FDIC must consent to any amendment to the debt instrument that modifies principal, interest, payment, default or ranking; and
• no document governing guaranteed debt may provide for automatic acceleration of debt upon a default by the Eligible Entity to make timely payment provided the guarantee payments are being made by the FDIC.

An Eligible Entity will be required to comply with the provisions of the master agreement for all guaranteed debt issued after December 5, 2008.

Disclosure -- Notices to the FDIC. A participating Eligible Entity must report all covered debt issued from October 14, 2008, through December 5, 2008, to the FDIC by December 5, 2008. In addition, it must notify the FDIC by December 19, 2008, of each issuance of guaranteed debt between October 14, 2008, and December 5, 2008, that is still outstanding at December 5, 2008. This notification must include the CFO’s certification.

After December 5, 2008, a participating entity must notify the FDIC of each guaranteed debt issuance via FDICconnect. The CFO must certify that the issuance does not exceed the debt limit.

Disclosure – Notices to Creditors. An Eligible Entity participating in the DGP is required to use the prescribed model disclosures in all written materials provided to lenders or creditors when issuing either guaranteed or nonguaranteed senior unsecured debt. The disclosures are only required with respect to debt that is eligible for the guarantee – senior unsecured debt.

An issuer does not have to provide disclosure when issuing debt that is not eligible for inclusion on the DGP (e.g., secured debt).
The deadline for complying with the notice requirements is December 19, 2008. Prior to that date, participating Eligible Entities must provide adequate disclosures in a commercially reasonably manner.

Additional Supervision. Eligible Entities that participate in the DGP must supply information requested by the FDIC. They will be subject to periodic FDIC onsite reviews to determine compliance with the terms and requirements of the Program.

Compliance with Other Laws. The FDIC’s agreement to include debt in the DGP does not exempt an Eligible Entity from complying with federal and state securities laws and with any other applicable laws when issuing guaranteed debt.

Transaction Account Guarantee Program

General. The FDIC is providing temporary guarantee for funds held at FDIC insured depository institutions in noninterest-bearing transaction accounts above the existing $250,000 deposit insurance limit.

Guarantee Term. The coverage became effective on October 14, 2008, and will continue through December 31, 2009 (for participating institutions). The guarantee is in addition to and separate from the coverage provided under the FDIC’s general deposit insurance regulations.

Covered Accounts. A “noninterest-bearing transaction account” is a transaction account (that allows for an unlimited number of deposits and withdrawals at any time) 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 encompasses (i) traditional demand deposit checking accounts that allow for an unlimited number of deposits and withdrawals at any time; and (ii) payment-processing accounts, such as payroll accounts, used by an insured depository institution’s business customers.

Interest-bearing lawyers trust accounts, generally referred to as IOLTA accounts, are deemed to be noninterest bearing accounts covered by the guarantee.

NOW accounts that have an interest rate at or below 0.5 percent will be considered noninterest-bearing and be covered by the guarantee provided the participating Eligible Entity has committed to keep the rate below 0.5 percent.

Account features (such as fee waivers or fee-reducing credits) do not prevent an account from qualifying under TAGP as long as the account otherwise fits within the definition.

The determination of whether an account is noninterest-bearing will be based on the account agreement, not whether interest accrues on an account’s deposits.

Although coverage is intended primarily to apply to business transaction accounts, it applies to all such accounts held by any depositor at the same institution. For example, if a consumer has a $250,000 certificate of deposit and a noninterest-bearing checking account for $50,000 (assuming the depositor has no other funds at the institutions), he or she would be fully insured for $300,000. Coverage of $250,000 will be provided for the certificate of deposit under the FDIC’s deposit insurance coverage. Coverage of the $50,000 checking account would be provided under the TAGP.

Disclosure. Whether an Eligible Entity remains in the TAGP, it must prominently disclose in writing at its main office, at all domestic branches and on its website if it offers internet deposits services its decision to participate in or opt-out of the TAGP.

Sample disclosures have been provided by the FDIC. These disclosures must be posted by December 19, 2008. Prior to that date, the institution must provide adequate disclosures of these materials in a commercially reasonable manner and must clearly state whether covered noninterest-bearing transaction accounts are guaranteed in full by the FDIC.

Sweep Accounts. The FDIC will treat funds in sweep accounts in accordance with its rules and procedures for determining sweep balances at a failed depository institution. Funds which are swept or transferred from a noninterest-bearing transaction account to another type of deposit or nondeposit account will be treated as being in the account to which the funds were transferred as of the close of the business day.

Funds swept from a noninterest-bearing transaction account to a noninterest-bearing savings account will be treated as being in a noninterest-bearing transaction account and will be guaranteed under the TAGP.

If cash in a noninterest-bearing deposit account is swept into an interest bearing account during the day (before the close of business), the funds in the interest bearing account will not be insured.

If the institution uses sweep arrangements or takes other actions that result in funds in a noninterest-bearing transaction account being transferred to or reclassified as an interest-bearing account or a nontransaction account, this must be disclosed to affected customers and they must be advised in writing that such actions will void the transaction account guarantee. The FDIC has not provided sample disclosures for sweep accounts because these arrangements vary widely between institutions, but the disclosure is required to be accurate, clear and in writing.

Fees

General. All Eligible Entities were automatically covered by the TLGP from October 14, 2008, through November 12, 2008, when there were no assessments of fees. Fees will be assessed beginning November 13, 2008, but only for Eligible Entities that do not opt out of the program. An Eligible Entity that opts out on or before December 5, 2008, will not pay any fees.

If the fees and assessments collected under the TLGP are insufficient to cover the cost of the program, the FDIC will impose an emergency special assessment on all insured depository institutions. Because the special assessment is required by statute to be based on the financial institutions’ liabilities, rather than deposits, larger financial institutions will bear the greater burden of the assessment as they typically maintain a higher proportion of liabilities than smaller financial institutions.

All financial institutions whose deposits are insured by the FDIC will be subject to any special assessment, irrespective of their participation in the TLGP.

The FDIC has created a surcharge for certain holding companies participating in the DGP, as described below (Fees on Guaranteed Debt).
If, at the termination of the DGP, there are excess funds remaining, they will be deposited in the Deposit Insurance Fund.

Fees on Guaranteed Debt. Beginning on November 13, 2008, any Eligible Entity that has not chosen to opt-out of the DGP will be assessed fees for continued coverage. A fee will be assessed on (1) senior unsecured debt, other than overnight debt, issued from October 14, 2008, through December 5, 2008, and still outstanding on December 5, 2008; and (2) senior unsecured debt issued from December 6, 2008, through June 30, 2009. The fee structure is as follows:

• Guaranteed debt with a maturity of 180 days or less – 50 basis points per annum.
• Guaranteed debt with a maturity of 181-364 days – 75 basis points per annum.
• Guaranteed debt with a maturity of 365 days or greater – 100 basis points per annum.

A 10 basis point per annum surcharge will be assessed on a holding company if its affiliated depository institutions hold less than 50 percent of the consolidated assets.

If a participating entity issues debt identified as “guaranteed by the FDIC” in excess of the limit established by the FDIC, it will have its assessment increased by 100 percent on all outstanding guaranteed debt. Furthermore, the participating entity and its institution-affiliated parties may be subject to enforcement actions including the assessment of civil money penalties.

The fee will be calculated for the maturity period of that debt or to June 30, 2012, whichever is earlier.

Fees will not be refunded if the guaranteed debt is retired before its scheduled maturity.

If an Eligible Entity does not opt-out, all newly-issued senior unsecured debt up to the maximum amount will be guaranteed as and when issued.

Except as discussed below (Issuance of Long-Term Nonguaranteed Debt), an entity must issue the maximum allowable amount of guaranteed debt before issuing nonguaranteed debt. Once it has reached this maximum, a participating entity can then issue nonguaranteed debt in any amount and for any maturity.

Invoices will be generated through FDICconnect once a participating institution notifies the FDIC of its issuance of guaranteed debt.

Issuance of Long-Term Nonguaranteed Debt. An Eligible Entity that does not opt out of the DGP on or before December 5, 2008 may notify the FDIC that it has elected to issue at any time, in any amount, senior unsecured nonguaranteed debt provided the debt matures after June 30, 2012.

This election must be made by the opt-out date (11:59 p.m. EST on December 5, 2008). Upon making an election, the electing Eligible Entity will be required to pay a nonrefundable fee.

The electing Eligible Entity will pay a nonrefundable fee in exchange for which it will be able to issue, at any time and without regard to the cap, nonguaranteed senior unsecured debt with a maturity date after June 30, 2012. The fee will be applied to the par or face value of senior unsecured debt, excluding debt extended to affiliates, outstanding as of September 30, 2008, that is scheduled to mature by June 30, 2009. The fee will equal 37.5 basis points. The nonrefundable fee will be collected by the FDIC in six equal monthly installments.

An entity electing the nonrefundable fee option will also be billed as it issues guaranteed debt under the DGP. The amounts paid as a nonrefundable fee will be applied to offset these bills until the nonrefundable fee is exhausted. Thereafter, the institution will have to pay additional assessments on guaranteed debt as it issues the debt.

Excess Funds. At the expiration of the TLGP, if funds remain after the FDIC has satisfied all eligible claims, the surplus funds will remain in the Deposit Insurance Fund and will be included in the future calculation of the reserve ratio.

Transaction Accounts. The FDIC’s guarantee for noninterest-bearing transaction accounts became effective on October 14, 2008, and will expire on January 1, 2010 (assuming the insured depository institution does not opt out of the TAGP).

Beginning on November 13, 2008, participating institutions will 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. These fees will be collected at the same time as the FDIC collects an institution’s quarterly deposit insurance assessments. Assessments associated with the TAGP will be in addition to an institution’s risk-based assessment. Fees for the program will be assessed and payable based on the quarter-end Call Report balances in covered accounts.

An Eligible Entity