FDIC won't extend bank-debt guarantee plan
WASHINGTON - The Federal Deposit Insurance Corp. has shelved plans to extend its program to guarantee bank bonds to 10 years after the Obama administration opposed the move, the FDIC's chairwoman, Sheila Bair, said.
"That's on hold," Bair said in an interview yesterday in Washington when asked about implementing the extension of the FDIC's initiative from the current three-year term. "The Treasury is not completely comfortable with that."
The FDIC announced the plan in January alongside the unveiling of the government aid package for Bank of America Corp. At the time, the agency said it would be extending its guarantees to covered bonds and other kinds of secured debt that supports consumer lending. Treasury spokesman Andrew Williams declined to comment on Bair's remarks.
Since its January statement, the FDIC has been mum about when and how it might proceed. Bair said yesterday that the agency decided to go in a different direction, and instead proceed with an effort to expand the current program to include an additional type of debt known as mandatory convertible.
Final rules on that new kind of debt will be released soon, Bair said. Interim rules were released in March.
Bair's remarks provide some clarity to the industry, after four months of silence. "We've kind of been at a loss to figure out what had become of that," said James Ma, a banking analyst at Barclays Capital in New York. "The existing program has been very successful."
The debt guarantees are part of the FDIC's Temporary Liquidity Guarantee Program, started in October, to provide a backstop to business checking accounts and interbank lending. The chairman of the Federal Reserve, Ben S. Bernanke, has credited the TLGP with helping stabilize financial markets.