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FDIC: The Bailout Beyond TARP

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While much media attention has been focused on the Treasury Department’s Troubled Asset Relief Program, there’s been far less coverage of other government bailout programs that have been under way since last fall.

As part of our project tracking government subsidies at Subsidyscope.com, we’ve attempted to delve into some of these programs, including the Federal Deposit Insurance Corporation’s $1.4 trillion Temporary Liquidity Guarantee Program – which, incidentally, is twice the size of TARP.

The program is intended to allow financial institutions to borrow and lend more readily through two avenues. Under the Debt Guarantee Option, debt issued by June 30, 2009, maturing no later than June 30, 2012, is guaranteed by the FDIC. So far the FDIC has guaranteed $224 billion in new debt under this option, with the potential of reaching $1 trillion.

The second component, the Transaction Account Guarantee Option, gives full guarantees for certain checking and non-interest-bearing accounts through December 31, 2009. The FDIC reports that it’s guaranteed approximately $684 billion under this option so far.

So how could this program be a subsidy? Well, the government is essentially acting as a co-signer of each participating bank’s debt obligation and non-interest-bearing account, and it’s doing it for far less that what it would cost to hire a private insurer.

That’s not to say that the program is bad. According to a Treasury survey of the 20 largest banks receiving TARP money (which you can get on Subsidyscope.com), one factor that led to an increase in lending activity from November to December was the TLGP, which gave a boost to debt underwriting. Overall however, the Treasury report showed that banks slightly reduced their lending between October and December 2008 – not a great sign that the bailout is working.

We wanted to know which financial institutions were participating in the TLGP. Imagine our surprise when we learned that the only public information available is a list of the ones that aren’t participating. The FDIC’s reasoning is that it isn’t an “opt-in” program but an “opt-out” program. That’s like the CDC announcing a national epidemic by listing the cities that aren’t affected.

Seeking to make the TLGP more transparent, we filed a Freedom of Information Act request with the FDIC last December, asking for a list of all the financial institutions that are participating in the program, as well as the amount of their guarantees. In February, we got half of what we wanted.

The FDIC provided us with a list of more than 14,000 banks, bank holding companies, and thrift holding companies in the United States, showing which are and which aren’t participating in the TLGP. That list is now on Subsidyscope.com. The amounts of the guarantees however, were not disclosed. The FDIC cited two exemptions to the FOIA law: One for confidential business information (Exemption 4) and the other on agency reports regarding the supervision of financial institutions (Exemption 8). We’re still trying to get that information, and will post it if we succeed.

In light of President Obama’s call, on his first day of office, for greater transparency in government agencies —“in the face of doubt, openness prevails”— it seems the FDIC should disclose the amounts that are being guaranteed.

While the TARP program appears to be the main target of pundits and the media – ironically because Treasury has relatively open in its actions – keep in mind that sometimes it’s the wheels that don’t squeak that may also be getting greased.