What Is the Temporary Liquidity Guarantee Program (TLGP)?
The Temporary Liquidity Guarantee Program (TLGP) was a direct bailout of U.S. banks instituted in 2008 by the Federal Deposit Insurance Corporation (FDIC) to ensure their stability during the global banking crisis.
The TLGP was one of a number of government interventions that resulted from the determination by the U.S. Treasury and Federal Reserve that the severe systemic risk warranted unprecedented action.
Under the program, the FDIC increased its insurance coverage for deposits held at financial institutions. It also guaranteed certain unsecured credit obligations, notably 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).
- The Temporary Liquidity Guarantee Program was a two-pronged program of the FDIC to backstop U.S. banks during the 2008 financial crisis.
- The first part of the program, the TAGP, guaranteed customer deposits.
- The second, the DGP, guaranteed short-term debt issued by banks.
- Together, these two measures were designed to prevent panic and alleviate short-term liquidity problems for banks.
Understanding the Temporary Liquidity Guarantee Program (TLGP)
The 2008 financial crisis was the worst economic disaster since the Great Depression of 1929. Banks were faced with a liquidity crisis caused by a wave of defaults and foreclosures on subprime mortgages. Several major banks and financial institutions had already collapsed.
The TLGP was announced in October 2008 as part of a series of new programs rolled out by the federal government to avert the most immediate threats to the U.S. financial system.
Many agencies were involved, but the TLGP was the FDIC’s part in the overall plan. It was aimed at restoring public confidence in the integrity of the banks by increasing the level of insurance on deposit accounts and guaranteeing banks' debt in the short-term credit markets.
The first part of the TLGP was addressed by the TAGP. With the soundness of the banking system in doubt, several bank runs occurred over the summer and fall of 2008. In order to prevent 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 thrifts through the end of 2009.
How Your Bank Account Is Insured
The FDIC insures bank deposits for up to $250,000 per account. The vast majority of American banks are FDIC insured. Accounts deposited at credit unions have the same level of coverage but it is administered by a different authority, the National Credit Union Share Insurance Fund (NCUSIF).
The Standard FDIC Coverage
This coverage was in addition to existing FDIC deposit insurance, which had been raised to $250,000 per depositor in the weeks before the TLGP was announced. The TAGP was later made permanent under the Dodd-Frank Act.
The DGP guaranteed in full unsecured, senior debt issued by participating institutions. With short-term credit markets in crisis, many banks were challenged or completely unable to roll over the short-term debt that they relied on to meet their immediate cash needs, including the demands of depositors.
By guaranteeing this debt, the DGP allowed participating banks greater ability to access the credit markets and avoid default. At its peak, the DGP guaranteed $345.8 billion of outstanding debt. The DGP expired at the end 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 failures as of the end of 2018. The FDIC collected $10.4 billion in fees and surcharges under the DGP and paid $153 million in losses on defaulted DGP debt.
Does the FDIC Insure All Bank Deposits?
The FDIC protects bank deposits of up to $250,000 in all "member banks" in the U.S., meaning almost all commercial banks in the U.S. That covers your checking account, savings account, and any money market deposits or certificates of deposit you purchased through the bank. Online banks have the same coverage, although it's wise in any case to look for the FDIC Member label. If you're in doubt, check the FDIC's BankFind app.
If you keep your money in a credit union, you have the same level of protection through a different agency, the National Credit Union Share Insurance Fund (NCUSIF). A much broader program to insure against bank losses was in effect only from 2008-2010 as an emergency measure during the financial crisis.
When Does the FDIC Not Insure My Money?
The FDIC does not cover losses in stocks, bonds, life insurance policies, annuities, municipal bonds, cryptocurrency assets, or U.S. Treasury securities, whether you purchased them at an FDIC member bank or somewhere else. There is no coverage for safety deposit box losses, either.
What If I Have More Than $250,000 in the Bank?
There are several ways to get around the $250,000 FDIC insurance limit. First, if you have a spouse, each co-owner of a join account is individually insured $250,000. In this case, assuming you meet other account requirements, your insured amount doubles to $500,000. Alternatively, you may open accounts at several different banks to keep the total in each account within the insured limit.
The Bottom Line
The Temporary Liquidity Guarantee Program greatly expanded the FDIC's authority to protect Americans against losses in the event of a bank failure. That program was an emergency measure passed to deal with the 2008-2009 financial crisis, and it expired in 2010. However, the standard FDIC deposit insurance program remains in place, along with a higher maximum insurance level of $250,000 per individual account.