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FDIC Debt Guarantee Guidance Released
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The FDIC released guidance on reporting debt
instruments under the Temporary Liquidity Guarantee Program's guarantee
of newly issued senior unsecured debt. Entities that participate in the
Debt Guarantee Program are required to notify the FDIC of any
guaranteed debt issuances and pay associated assessment premiums.
The Financial Institution Letter includes guidelines for registering
debt issued under the program. Participating entities that issue
FDIC-guaranteed debt after Dec. 5 must register that issuance via
FDICconnect within five calendar days. Financial institutions issuing
long-term nonguaranteed debt must pay a fee in six equal monthly
installments beginning Dec. 19.
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TARP Head Says Program Avoided Collapse
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Treasury Interim Assistant Secretary Neel Kashkari, who is
charged with implementing the government's economic stabilization
programs, said the banking system is more stable due to the Troubled
Asset Relief Program. During an update of the TARP, which he
said prevented the financial system from collapsing, Kashkari also said
banks have an obligation to lend in their communities and work
borrowers to prevent foreclosure. Kashkari said Treasury has disbursed
an estimated $151 billion to 52 institutions in 25 states.
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ICBA Supports New "TALF"
Program
By Paul Merski, ICBA Senior Vice
President and Chief Economist
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Community bankers may have to become familiar with yet
another government acronym added to the growing alphabet soup of
financial relief programs: "TALF." The Term Asset-Backed Securities
Loan Facility, announced Nov. 25 by the Federal Reserve and U.S.
Treasury, will extend up to $200 billion in nonrecourse loans to
holders of high-quality asset-backed securities backed by consumer and
small business loans in a bid to free up the frozen asset-backed
securities market. The Treasury Department's Troubled Asset Relief
Program (TARP) will extend $20 billion in funds to support the
initiative.
The Federal
Reserve and Treasury answered ICBA's request with this new liquidity
facility that will be especially helpful to SBA community banks
lenders. Following ICBA communications with the
Federal Reserve, Treasury Department and congressional small business
committees to help thaw the frozen credit markets, Treasury and the Fed
announced the beneficial new
TALF program to finance the issuance of non-mortgage asset-backed paper
to support lending to consumers and small businesses.
Treasury will provide $20
billion of credit protection to the Federal Reserve in connection with
its $200 billion Term Asset Backed Securities Loan Facility. ICBA
thanks House Small Business Committee Chairman Nydia Velazquez (D-N.Y.)
for her efforts on the issue.
The consumer asset-backed securities market is an important source of
liquidity to financial institutions that provide federally guaranteed
small business loans and consumer lending, such as auto loans, student
loans, credit cards and Small Business Administration loans. ICBA has
led the effort to help jumpstart the secondary market for SBA loans by
urging the establishment of a temporary credit facility for approved
SBA poolers. By providing liquidity to issuers of consumer asset backed
paper, the Federal Reserve facility will enable more institutions to
step up their lending, enabling borrowers to have access to lower-cost
consumer finance and small business loans.
How
the TALF will Work?
The Federal Reserve is still working on the details of
this new liquidity facility and intends to have it fully functional by
February. The TALF is structured as a Federal Reserve Bank of New York
lending facility that will lend using high-grade collateral held by
securitizers. Under the TALF, the New York Fed will make loans to
issuers of asset-backed securities that have the highest
investment-grade rating (i.e., AAA-rated) from at least two nationally
recognized statistical rating organizations (NRSROs). In the case of
the small business loan guarantee pools ("pool security"),
the Federal Reserve informed ICBA that the pools will not need to be
rated because they are guaranteed by the Small Business Administration
(e.g., have full faith and credit of U.S. backing).
The New York Fed will lend an amount equal to the market value of the
asset-backed securities less a small haircut and will be secured at all
times by the asset-backed securities. The TALF loans will have a
one-year term. The FRBNY will assess a nonrecourse loan fee at the
inception of each loan transaction. FRBNY will take the AAA or
otherwise NRSRO- or SBA-sanctioned asset-backed securities as
collateral for their loans, which the issuers will then be able to use
to go out and make more asset-backed securities-SBA pools-and, in turn,
more loans will be able to be securitized and free up additional
funding for consumers and small businesses. This is intended to provide
temporary liquidity to the frozen secondary market players so they can
continue securitizing more consumer loans and small business loans. The
TALF will end making new loans on Dec. 31, 2009, unless extended.
To manage the TALF loans, New York Fed will create a special-purpose
vehicle. Treasury Department will provide $20 billion from the $700
billion TARP funds to safeguard losses the Federal Reserve might incur.
So TALF and its special-purpose vehicle are based at the New York Fed
with the backing of Treasury and TARP funds.
ICBA believes this program could help keep money flowing to consumers
and small businesses and continues to work closely with the Federal
Reserve and Treasury to help ensure the program is crafted and
implemented to provide the intended value and results. Many banks were
unable to make additional loans because they couldn't sell off existing
ones to investors through the secondary markets.
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