DEFINITION of Temporary Liquidity Guarantee Program (TLGP)

The Temporary Liquidity Guarantee Program (TLGP) was instituted in 2008 by the FDIC during the worldwide banking crisis. The TGLP was one of many 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 depository accounts held at certain financial institutions, and also guaranteed certain unsecured credit obligations of those institutions, most notably certificates of deposit and commercial paper. These two separate programs were known as the Transaction Account Guarantee Program and the Debt Guarantee Program

BREAKING DOWN Temporary Liquidity Guarantee Program (TLGP)

The TGLP was conceived to avert the two most immediate threats to the U.S. financial system. The first was the confidence of the public in the integrity ot their depositary institutions. The second threat was the disintegration in the interbank and short-term credit markets causing such a liquidity crisis that several major institutions went bankrupt.

Financial Crisis

The 2008 financial crisis was the worst economic disaster since the Great Depression of 1929. The crisis was the result of a sequence of events, each with its own trigger and culminating in the near collapse of the banking system. It has been argued that the seeds of the crisis were sown as far back as the 1970s with the Community Development Act, which forced banks to loosen their credit requirements for lower-income minorities creating a market for subprime mortgages.

'By calming market fears and encouraging lending, the TLGP helped bring stability to financial markets and the banking industry during the crisis period. The TLGP consisted of two components: (1) the Transaction Account Guarantee Program (TAGP), an FDIC guarantee in full of noninterest-bearing transaction accounts; and (2) the Debt Guarantee Program (DGP), an FDIC guarantee of certain newly issued senior unsecured debt," the FDIC said.

The TAGP guaranteed in full all domestic noninterest-bearing transaction deposits, low-interest NOW accounts, and Interest on Lawyers Trust Accounts (IOLTAs) held at participating banks and thrifts through December 31, 2009. The deadline was extended twice and expired on December 31, 2010.

In terms of costs to the Treasury, the FDIC reported that 122 entities issued TLGP debt and at its peak, the DGP guaranteed $345.8 billion of outstanding debt. The FDIC collected $10.4 billion in fees and surcharges under the DGP and paid $153 million in losses resulting from six participating entities defaulting on debt issued under the DGP.

Under TAGP, the FDIC collected $1.2 billion in fees and total estimated TAGP losses were $2.1 billion on failures as of December 31, 2012.