What Is the Temporary Liquidity Guarantee Program (TLGP)?

The Temporary Liquidity Guarantee Program (TLGP) was a direct bailout of the banking sector instituted in 2008 by the Federal Deposit Insurance Corporation (FDIC) during the worldwide banking crisis.

The TLGP 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.

Key Takeaways

  • 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 deposits accounts, and the second, DGP, guaranteed short-term debt issued by participating banks.
  • The TLGP was aimed at preventing bank runs and alleviating short-term liquidity problems for banks.

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 (TAGP) and the Debt Guarantee Program (DGP).

Understanding the Temporary Liquidity Guarantee Program (TLGP)

By the fall of 2008 U.S. and global financial markets were in crisis. The 2008 financial crisis was the worst economic disaster since the Great Depression of 1929. Banks were faced with a liquidity crisis among banks amidst a wave of defaults and foreclosures on subprime mortgages. Several major banks and financial institutions had already failed and gone bankrupt. 

The TLGP was announced in October 2008 as part of a concerted series of new programs rolled out by the federal government conceived to avert the two most immediate threats to the U.S. financial system.

The TLGP as the FDIC’s part in the overall plan. It was aimed at maintaining the confidence of the public in the integrity of their depository institutions by increasing insurance on deposit accounts and providing a guarantee to banks' debt in the interbank and 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 noninterest-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.

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 extended through 2010, and then replaced by a similar guarantee under the Dodd-Frank Act through the end of 2012.

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 immediate liquidity needs including the demands of depositors.

By guaranteeing this debt, the DGP allowed participating banks greater ability to access credit markets to avoid default. 122 entities issued DGP guaranteed debt, and 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 December 31, 2018. The FDIC collected $10.4 billion in fees and surcharges under the DGP and paid $153 million in losses on defaulted DGP debt.