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ICBA Urges Improvements to FDIC Guarantee Program

Washington, D.C. (Nov. 14, 2008)—The Independent Community Bankers of America (ICBA) applauded the Federal Deposit Insurance Corporation’s (FDIC) efforts to unlock the credit markets with its Temporary Liquidity Guarantee (TLG) Program and provided recommendations to improve the program. The program’s Transaction Account Guarantee Program will enhance depositor confidence in community banks and benefit large depositors. The Debt Guarantee Program, however, could be improved to make it more attractive to community banks.

“The vast majority of the nation’s community banks are in solid financial shape and have been and will continue to do whatever they can to help our nation and its communities work through the current economic downturn,” said Viveca Ware, ICBA senior vice president. “ICBA has several concrete recommendations that will encourage community bank participation in the program.”

The Transaction Account Guarantee Program would enhance depositor confidence in community banks and free up capital that would benefit large depositors, ICBA stated in a letter to the FDIC. However, the current Debt Guarantee Program provides few benefits for community banks, which, unlike larger institutions, typically do not issue much senior unsecured debt. ICBA also recommended expanding coverage to include all transaction accounts—interest-bearing and non-interest-bearing—to level the playing field for community banks by eliminating the incentive for customers to move funds to too-big-to fail institutions or money market mutual funds.

Reflecting community bank concerns that banks not planning to participate in the program could be deemed unsafe, ICBA urged the FDIC to include a disclaimer that its online listing of banks opting out of the programs is not an indicator of a bank’s financial condition. ICBA thanked the FDIC for not imposing the additional burden of requiring banks to send individual disclosure notices to their customers regarding the bank’s participation in the program, since disclosures will be made in bank lobbies ICBA also strongly encouraged the FDIC to develop model disclosure language.

To improve community bank participation in the Debt Guarantee Program, ICBA recommends the FDIC:

  • provide a separate opt-out for overnight federal funds to give entities additional flexibility,
  • adopt a new guarantee cap for all Program participants based on an entity’s total liabilities as of Sept. 30, 2008,
  • implement a risk-based pricing model with fees ranging from under 10 basis points to no more than 50 basis points.

ICBA urged the FDIC to exclude bank holding companies with significant non-bank subsidiaries from participating in the TLGP, as the net costs of the program will be borne by insured depositories only. ICBA also urged the FDIC to require the largest banks to participate in the program to address the concern that too-big-to-fail banks have little incentive to take part in the program that guarantees senior unsecured debt and non-interest-bearing transaction accounts.

Read the letter at www.icba.org.