Tuesday, March 17, 2009

FDIC To Commingle TLGP Fee Increase With DIF

As Zero Hedge expected, the FDIC announced today that surcharges imposed on the TLGP program will be in effect on April 1st. I wrote about the topic extensively here, discussing its implications for capital raising, specifically for bank holding companies. The FDIC's press release can be found here.

A very troubling bit of information hiding in a grammatically flawed section of the press release confirms fears that the TLGP surcharges will be merely a way to restore the DIF fund which at this moment could be as low a $0 and which information, if widely known, would not be received well by U.S. depositors once they realize that none of their deposits have even an implicit token financial backing anymore. Instead money that by statutory requirement is supposed to be there for the sole backing of depositors, will be eroded as it is used as a "slush fund", to provide additional under the radar cash to Bank Holding Companies (read all financials).

Surcharges will be will be [sic] in addition to current fees for guaranteed debt and deposited into the Deposit Insurance Fund (DIF) instead of being set aside to cover potential TLG program losses.

"The surcharges recognize that a relatively small portion of the industry is actively using the debt guarantee [this is patently false], but all insured depository institutions ultimately bear the risks associated with this program," noted Chairman Bair. "Putting the surcharges in the DIF will bolster the reserves that support our regular insurance program. Surcharge revenues collected in the second quarter, combined with Congressional action to increase our borrowing authority, should enable the FDIC to meaningfully reduce the 20 basis point special assessment proposed by the board on February 27th." noted Chairman Bair.

This is merely yet another datapoint of all the dirt that is being swept under the carpet as Obama hits the talk show circuit to cheer lead the 12% bear market rally and convince even more people to throw away their money into a market which with every passing day is becoming less viable.

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Rolfe Winkler said...

Not sure I'd say this categorically makes it a slush fund. After all, I'm pretty sure the DIF could only be used to backstop actual losses on debt incurred by the TGLP, which would only happen if the banks go insolvent in the first place.

I would say that to the degree FDIC allows guaranteed investments to replace private capital in banks' capital structures, then if the banks DO fail, it's easier to justify using DIF funds to pay off creditors. They will have purchased "guaranteed" debt after all.

Anonymous said...


I read your guest post over at NC on Sunday and it sent me to your blog. You had me at TLGP....and I will read your blog every day. You are an information superhighway.

This latest move by the FDIC has me very frightened. God help us after the FED action today.

I hope it is OK that I have brought this topic up over at Evil Speculator (a blog I call home for trading) and also over at the Ticker Forum. I linked my comments to your blog. More people need to read you.

Keep up the awesome work and thank you so much!!