WASHINGTON — The U.S. government should let it's debt guarantee program for banks expire at the end of October as scheduled, but should put an emergency backstop program in place, Federal Deposit Insurance Corp. staff said Tuesday.
FDIC staff said in a final rule, which the FDIC board is scheduled to vote on, that the FDIC's guarantee of senior unsecured debt should be allowed to expire on October 31.
Additionally, the staff said the FDIC should create a limited facility that would allow some firms to issue FDIC-backed debt through the end of April 2010. An acknowledgement of the ongoing dislocation in the financial services industry, the emergency debt guarantee program would be for firms that can show they can't issue debt "as a result of market disruptions or other circumstances beyond the applicant's control."
The FDIC would collect a stiff fee for any firms that take advantage of the emergency facility. The proposed rule would impose an annualized fee of 300 basis points on any FDIC-backed debt issued through the program, and would allow the agency to increase that rate for more risky banks.