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11.4 FDIC Guarantee Program

<< Title XI Overview

11.4 FDIC Guarantee Program

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            11.4.     FDIC Guarantee Program.  Upon certain triggering events, the FDIC is to establish a widely available program to guarantee obligations of solvent insured depository institutions or solvent depository institution holding companies and their affiliates during times of severe economic distress ("Guarantee Program").  Any such program may not include the provision of equity in any form. 

                        11.4.1. Process.  The Treasury Secretary may ask the Fed and FDIC to determine whether a "liquidity event" (which means (A) an exceptional and broad reduction in the general ability of financial market participants (i) to sell financial assets without an unusual and significant discount; or (ii) to borrow using financial assets as collateral without an unusual and significant increase in margin; or (B) an unusual and significant reduction in the ability of financial market participants to obtain unsecured credit)  exists that warrants the use of a guarantee program.  If two-thirds of the both the Fed Governors and FDIC directors approve and the Treasury Secretary approves, the FDIC is to create a "widely available" program to guarantee the obligations of solvent banks and holding companies. The terms and conditions are to be set by the FDIC, with the concurrence of the Treasury, and the Treasury (in consultation with the President) is to determine the maximum amount of debt that may be guaranteed. The President then is to seek Congressional approval of the amount.  Absent such approval, the FDIC may not guarantee debt.  [§1104]

The FDIC, in consultation with the Treasury Secretary, is required to issue regulations that establish policies and procedures governing the issuance of guarantees.  Such policies may include a requirement for collateral as a condition of a guarantee.  

            11.4.2. Guarantee Program Funding.  The FDIC is required to charges fees and other assessments to participants in the Guarantee Program in amounts necessary to cover the costs of the program, including projected losses.  To the extent that these fees are insufficient, the FDIC is authorized to impose a special assessment on participants in the program.  The FDIC is authorized to borrow from the Treasury in connection with the program and may not borrow from the Deposit Insurance Fund.  [§1105]

                        11.4.3. Treatment of Borrowers in Default Under Guarantee Program. If an insured depository institution participating in the Guarantee Program or another specified FDIC debt guarantee program defaults on any obligation guaranteed by the FDIC, the FDIC is required to appoint itself as receiver.  If a participating company defaults that is not an insured depository institution, the FDIC is to consider whether (i) the company should be placed in receivership under Title II, or to file a petition for bankruptcy under Chapter 11 if the FDIC is not appointed as receiver within 30 days of default or (ii) to file an involuntary petition for bankruptcy on behalf of the company. [§1106]