FDIC: The Bailout Beyond TARP



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.

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  • Bandito

    I really don’t find many that share that view honestly. A complete market crash and lack of liquidity in the market will cause are credit oriented economy to come to a grinding halt.

    You can view results of TARP from cbo.gov. It’s making a profit for the government actually, at least for mortgage back securities.

    You might win more to a cause to bring back market discipline by having regulations in place that prevent us from every getting to this point.

  • PLEASE STOP CALLING TARP A “BAILOUT”; START CALLING IT WHAT IT REALLY IS: A ROBBERY! In all honesty, the most humane thing that can be done for the American people is to let the crooked banks crash, and also force them to pay their debts WITHOUT OUR TAX MONEY. Politicians water down legally-sanctioned theft (printing money, devaluing currency, taxation) with words like “bailout” to soften the affront to the American people. Call it what is really is: STEALING. The BEST REGULATION OF ALL is to let the banks crash. The reason these corporate banks got so big in the first place, is that members of Congress took bribes(“political contributions”) from banking lobbyists. The politicians allowed the banking corporations to default on their loans and betray their financial liabilities. It was the government that caused the problems in the first place. The government allowed this to go on since at least 1990. THAT’S why these banks were “to big to fail”. They allowed the banks to rip people off by taking the people’s money and calling on political cronies allow them do get away with stealing(defaulting on the debts they owed people). HAS ANYONE ELSE NOTICED THE LACK OF ATTENTION IN THE MEDIA WITH REGARDS TO EXACTLY WHERE MOST OF THE TARP FUNDS WENT? I mean, AIG took around $170 billion, but the executives only got around $170 million, WHERE DID THE OTHER %99.9 OF THE MONEY GO? This money is in all likelihood being given to people who don’t need it, but the mass media machine doesn’t wnat you to know that.