October 31, 2008
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Commercial Financial Services Brief: October 2008
TROUBLED ASSETS RELIEF PROGRAM (TARP) - CAPITAL PURCHASE PROGRAM
The Capital Purchase Program (CPP) is a voluntary program designed to encourage financial institutions to build capital with the goal of increasing financing. The Treasury will purchase up to $250 billion of senior preferred shares of certain banks, savings associations and holding companies. The program is available to financial institutions of all sizes.
Requirements of the CPP Program
An election to participate in the program will need to be made by subject financial institutions no later than November 14, 2008.
Each financial institution should:
Issues to be Resolved
The following issues require additional clarification:
FDIC TEMPORARY LIQUIDITY GUARANTEE PROGRAM (TLGP)
The FDIC issued interim rules establishing the Temporary Liquidity Guarantee Program (TLGP). The TLGP consists of two components:
FDIC insured banks, U.S. bank holding companies, including financial holding companies; and specified U.S. savings and loan holding companies are subject to the new rules. Under the TLGP, the FDIC, as of October 14, 2008, implemented both guaranties for all eligible entities, without cost to the entity, for the first 30 days of the program. After that time, fees will be assessed as follows:
The amount of debt covered under the program for any institution is limited to 125% pf the institution’s debt outstanding as of September 30, 2008, that is scheduled to mature before June 30, 2009.
Scope of Guaranties
The guaranties will only apply to the following:
All eligible entities will be covered under the TLGP without cost to the entity for the first 30 days of the program. On or before November 12, 2008, eligible entities must inform the FDIC if they will opt out of the debt guarantee program or the transaction account guarantee program, or both. Beginning on November 13, 2008, unless an eligible entity has chosen to opt out of a component of the TLGP, it will be assessed fees for continued coverage under that component. An eligible entity's decision to opt out of either component of the TLGP will be made available to the public on the FDIC website.
For further information, please review the following article here.
DIRECTOR’S RESPONSIBILITY - BANK LIQUIDITY
FDIC risk management guidelines require that all banks have Board-approved written policies and procedures for the day-to-day management of liquidity. The strategy and policies must be communicated throughout the bank. The Board must receive regular reports regarding the liquidity of the bank and must ensure that liquidity risk is monitored and controlled. Boards are responsible for oversight of the following:
Board Policy Requirements
The FDIC guidelines for Board policies and procedures regarding liquidity issues address, among other things, the following areas:
Reassess Your Policies in an Uncertain Environment
In these uncertain times with liquidity issues at the forefront, it is to be expected that your liquidity policies and procedures will receive scrutiny. You should assess your policies and procedures for compliance with the liquidity guidelines.
If you have any questions, please contact a member of the GPM Economic Recovery Team listed on the right-hand side of the Web page.
This article is provided for general informational purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult a lawyer concerning any specific legal questions you may have.
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