Way Out Gets Clearer as TLGP to End

By Emily Flitter



In one of the first concrete steps the government has taken to unwind itself from the banking industry, the Federal Deposit Insurance Corp. said Tuesday it would let its debt guarantee program expire at the end of the month while leaving a six-month window to deal with near term emergencies. The agency’s final rule would let banks that have participated in the Temporary Liquidity Guarantee Program issue new guaranteed debt after Oct. 31 under certain conditions, but face significantly higher fees if they do so.”It should be clear that this is not a continuation of the program, but an ending of the program with just a short-term emergency facility that is only available for clearly unforeseen and unexpected events,” FDIC Chairman Sheila Bair said at a board meeting. “It would carry very high fees, so I think we are almost completely out and I think it is a good sign that the markets are normalizing and the system is repairing itself.”. The fees for issuing more debt would be as much as six times higher than the original charges to use the program. The FDIC raised the fee to 300 basis points, well above the range of 50 to 175 basis points when the program began operation. So far, the agency has earned $9.4 billion in fees, and has taken no losses as part of the program. Karen Shaw Petrou, the managing director of Federal Financial Analytics Inc., said the 300 basis-point surcharge was high, but not outrageous. “It’s a lot,” she said. “The FDIC is trying to balance a punitive number with one that shows they didn’t keep the candy store open with something an otherwise viable institution with a liquidity squeeze could handle.”