Risk Management

Companies Line Up for Expanded FDIC Coverage

Bank of New York Mellon and John Deere are among those that will have full insurance coverage of deposit transaction accounts and senior unsecured ...
Stephen TaubDecember 5, 2008

The Bank of New York Mellon said Friday that it will continue to participate in the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program (TLGP), joining other companies that announced the same Thursday. The program provides 100 percent insurance coverage for domestic noninterest-bearing transaction accounts — regardless of dollar amount — through December 31, 2009.

The FDIC launched the program in mid-October, and eligible institutions were automatically enrolled for an introductory period through early December. The noninterest-bearing deposit transaction accounts covered by the program are used mainly for processing business payroll and other payments. Such accounts frequently exceed the maximum insurance limit of $250,000 that applies to companies not enrolled in the temporary guarantee program.

The bank also said it is participating in another provision of the program that provides for the guarantee of newly issued senior unsecured debt of eligible financial institutions. This is intended to increase liquidity by helping the institutions replace existing debt that is scheduled to mature on or before June 30, 2009. It is funded through insurance premiums on newly issued debt.

Elsewhere, on Thursday John Deere Capital Corp.; its parent company, John Deere Credit Co.; and FPC Financial said they too will continue to participate in both the transaction account and debt guarantee aspects of the TLGP.

Also on Thursday, GE Capital, General Electric’s finance arm, sold $6.5 billion of medium-term notes in four parts guaranteed by the FDIC under the TLGP, up from an originally planned $5.5 billion. And Morgan Stanley sold an additional $475 million under the program.

Other institutions that have participated in the program include Goldman Sachs, JPMorgan Chase, Bank of America, and Wells Fargo.

Participation in the program was free during the introductory period. Going forward, the charge for the debt guarantee is 75 basis points against the amount covered, and for the deposit guarantee there is a 10 basis point surcharge on accounts not otherwise covered by the existing deposit insurance limit of $250,000.

FDIC chairman Sheila Bair said Thursday that the debt guarantee program is working well and profits from it will be used for insuring bank deposits, according to Reuters. She said that as of Tuesday, about $37 billion in debt has been issued under the TLGP, aimed at unfreezing credit markets.

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