Impermanent Liquidity Guarantee Program (TLGP)

What Is the Temporary Liquidity Guarantee Program (TLGP)?

The Temporary Liquidity Guarantee Program (TLGP) was a direct bailout of the banking sector organized in 2008 by the Federal Deposit Insurance Corporation (FDIC) during the worldwide banking crisis.

The TLGP was one of numerous government intercessions that came about because of the determination by the U.S. Treasury and Federal Reserve that the extreme systemic risk justified extraordinary action.

Under the program, the FDIC increased its insurance coverage for depository accounts held at certain financial institutions, and furthermore guaranteed certain unsecured credit obligations of those institutions, most outstandingly certificates of deposit and commercial paper. These two separate programs were known as the Transaction Account Guarantee Program (TAGP) and the Debt Guarantee Program (DGP).

Understanding the Temporary Liquidity Guarantee Program (TLGP)

By the fall of 2008 U.S. furthermore, global financial markets were in crisis. The 2008 financial crisis was the most terrible economic disaster since the Great Depression of 1929. Banks were confronted with a liquidity crisis among banks in the midst of a wave of defaults and dispossessions on subprime mortgages. Several major banks and financial institutions had proactively failed and failed.

The TLGP was announced in October 2008 as part of a coordinated series of new programs rolled out by the federal government considered to deflect the two most immediate dangers to the U.S. financial system.

The TLGP was the FDIC's part in the overall plan. It was pointed toward keeping up with the confidence of the public in the integrity of their depository institutions by expanding insurance on deposit accounts and giving a guarantee to banks' debt in the interbank and short-term credit markets.

The initial segment of the TLGP was tended to by the TAGP. With the adequacy of the banking system in uncertainty, several bank runs happened over the late spring and fall of 2008. To forestall further bank runs, this program guaranteed in full all domestic non-interest-bearing transaction deposits, low-interest NOW accounts, and Interest on Lawyers Trust Accounts (IOLTAs) held at participating banks and frugalities through the finish of 2009.

This coverage was as well as existing FDIC deposit insurance, which had been raised to $250,000 per depositor a long time before the TLGP was announced. The TAGP was subsequently extended through 2010, and afterward supplanted by a comparative guarantee under the Dodd-Frank Act through the finish of 2012.

The DGP guaranteed in full unsecured, senior debt issued by participating institutions. With short-term credit markets in crisis, many banks were tested or totally unfit to roll over a shorter period of time debt that they depended on to meet immediate liquidity needs including the requests of depositors.

By guaranteeing this debt, the DGP permitted participating banks greater ability to access credit markets to stay away from default. 122 elements issued DGP guaranteed debt, and at its pinnacle the DGP guaranteed $345.8 billion of outstanding debt. The DGP expired toward the finish of 2012.

In terms of costs to the Treasury, the FDIC reported that under TAGP, it collected $1.2 billion in fees against $1.5 billion in losses on disappointments as of December 31, 2018. The FDIC collected $10.4 billion in fees and overcharges under the DGP and paid $153 million in losses on defaulted DGP debt.

Features

• The initial segment of the program, the TAGP, guaranteed deposits accounts, and the second, DGP, guaranteed short-term debt issued by participating banks.
• The TLGP was pointed toward forestalling bank runs and lightening short-term liquidity issues for banks.
• The Temporary Liquidity Guarantee Program was a two dimensional program of the FDIC to backstop U.S. banks during the 2008 financial crisis.