Mitchell Jaworski - AHN Reporter
Washington, DC (AHN) - The Federal Deposit Insurance Corp. approved on Friday the Temporary Liquidity Guarantee Program, which provides insurance on loans between banks.
The program is aimed to open up bank-to-bank lending as institutions will no longer need to worry if the other party is going to default on the loan. New debt with duration of more than 30 days will be guaranteed.
Guarantees are as of Oct. 23, when the program was introduced. Federally insured banks and thrifts were automatically covered but now have till Dec.5 to decide if they will participate or opt-out.
The FDIC will back new debt that is issued between Oct. 14 and June 30, 2009. The insurance on that debt will last till June 30, 2013.
The program actually has two separate parts; one that guarantees newly issued senior unsecured debt of insured depository institutions and most U.S. holding companies (the Debt Guarantee Program).
The other guarantees certain noninterest-bearing transaction accounts at insured depository institutions (the Transaction Account Guarantee Program).
Of the 8,500 U.S. banks and thrifts, it's expected that roughly half of them will participate in the program.
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