The FDIC’s Board of Directors approved an interim rule on October 23 to govern the agency’s new Temporary Liquidity Guarantee Program (TLGP). The FDIC announced the creation of the TLGP on October 14, as part of a larger government effort to strengthen confidence and encourage liquidity in the nation’s banking system. Although the rule went into effect immediately, comments will be taken for a 15-day period.

The program has two components. One, the Debt Guarantee Program, guarantees newly issued senior unsecured debt of the participating organizations, within a certain limit, issued between October 14, 2008 and June 30, 2009. For such debts maturing beyond June 30, 2009, the guarantee will remain in effect until June 30, 2012

The other component, the Transaction Account Guarantee Program, provides full coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount until December 31, 2009. For purposes of the rule, the definition of a non-interest bearing transaction account generally encompasses traditional checking accounts that allow for an unlimited number of deposits and withdrawals at any time, and pay no interest.

All eligible institutions are automatically enrolled in the program for the first 30 days at no cost. Organizations that do not wish to participate in the TLGP must opt out by 11:59 p.m. on November 12, 2008. After that time, participating entities will be charged fees.

Eligible entities generally include any FDIC-insured depository institution, any U.S. bank holding company, including financial holding companies, and certain U.S. savings and loan holding companies. The interim rule includes a provision for certain otherwise ineligible holding companies or affiliates that issue debt for the benefit of an insured institution or eligible holding company to apply for inclusion in the program on a case-by-case basis.

“I strongly encourage eligible institutions of all sizes to participate in this program,” said FDIC Chairman Sheila C. Bair. The program “will once again spur credit to flow, which is essential for banks to return to normal lending activity. The overwhelming majority of banks are strong, safe and sound. But a lack of confidence is driving the current turmoil. And it is a lack of confidence that these guarantees are designed to address.”