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To: ChanceIs who wrote (219510)	9/9/2009 2:00:00 PM
From: MulhollandDrive	Respond to of 306849

and WHEN things start declining again????? hmmmmm..... FDIC Proposes Six-Month Extension for Debt Guarantees (Update1) Share \| Email \| Print \| A A A By Rebecca Christie Sept. 9 (Bloomberg) -- The Federal Deposit Insurance Corp. proposed a six-month, emergency-only extension to its debt guarantee program as regulators move to wean companies from federal aid approved at the height of last year’s credit crisis. The five-member FDIC board today unanimously approved seeking comment for 15 days on extending the program. The FDIC now guarantees eligible debt issued before the scheduled Oct. 31 expiration by banks that get agency approval and pay a fee. “It has been a successful program but we would like to end it,” FDIC Chairman Sheila Bair said at a Washington meeting. Credit markets are recovering and she doesn’t expect banks to need further access to the program, meaning the agency should now seek input whether to go “cold turkey” or offer an emergency mechanism for a final six months, she said. Bankers have pressed the FDIC to spell out how it will end the program, which Federal Reserve Chairman Ben S. Bernanke has said was instrumental in keeping markets stable during the worst of the 2008 financial crisis. The program is part of the Temporary Liquidity Guarantee Program; a portion for business checking accounts was extended in August for six months. “The point here is to allow for an orderly transition out of a government-backed system,” said Robert Strand, a senior economist at the American Bankers Association in Washington, in a telephone interview yesterday. The ABA had asked the FDIC to “worry about the cutoff points and the suddenness” of ending the guarantees, to make sure closing down the program doesn’t roil markets, he said. FDIC Permission Under the limited extension, designed to help the FDIC phase out the program, banks would have to apply to the board for permission to access the aid and show that they were unable to issue non-guaranteed debt due to market disruptions or other emergency circumstances. As proposed, the emergency facility would cover debt issued through April 30, 2010, for any banks that win agency approval. The program’s debt guarantees extend through Dec. 31, 2012. “It’s a reasonable safeguard, and when things start declining again it’s helpful to have that option,” said Gregory Habeeb, who manages $7.5 billion in fixed-income assets at Calvert Asset Management Co. in Bethesda, Maryland. “The fact that it was extended is called ‘bad and good.’ The bad is that it’s still needed. The good is it’s still there if needed.” The FDIC had about $320 billion in outstanding debt guaranteed by the program as of July 31, from firms including Citigroup Inc. and General Electric Co. Regulators are weaning banks from U.S. backing by requiring them to issue debt without guarantees before repaying Troubled Asset Relief Program funds and escaping restrictions attached to the aid. Tighten Access The compromise is consistent with how the Federal Reserve has handled phasing out its liquidity programs, by extending the deadlines but slowly tightening the access, said Stephen Stanley, chief economist at RBS Securities Inc. “Authorities would rather see banks stop using the liquidity programs because they are no longer necessary than to cut them off prematurely,” Stanley said. “Judging from the limited usage of TLGP lately, the FDIC is already well on its way to this goal.” Issuance of FDIC-guaranteed bonds has shrunk to $10.8 billion in the third quarter of this year from $130.2 billion in the first quarter and $34.7 billion in the second, according to data compiled by Bloomberg. The guarantees for business checking and other transactional accounts above the $250,000 deposit insurance limit are now slated to expire on June 30, 2010, extended from Dec. 31. Banks that want to take advantage of the extra six months of coverage will need to pay higher fees, the FDIC said. To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net bloomberg.com