Banks will soon have to make do without a federal debt guarantee program that was seen as helping to stabilize the credit markets after last year's economic collapse.
The Federal Deposit Insurance Corp. will soon announce plans to wind down the Debt Guarantee Program, which allowed banks to issue debt backed by the federal government, the Wall Street Journal reported.
Those guarantees kept down the cost of borrowing and reassured investors that participating banks remained secure. So far, the government has backed more than $304 billion in promissory notes, commercial paper, and other debt instruments.
In recent months, however, interest in the program has declined as normal credit markets have recovered and the banking crisis appears to have waned. According to the Journal, while the government backed 60 deals in the first quarter of 2009, it backed only eight in the third quarter.
General Electric Inc., Citigroup Inc., and GMAC were the program's most active participants, the paper said.
The program is scheduled to expire at the end of October, but the FDIC on Wednesday said it was considering keeping it open through April to handle "emergency" situations.
This would give regulators flexibility in case the banking industry was to seize up again. At the same time, however, the FDIC said it intends to discourage further participation by charging at least 300 basis points, or 3 percent, of the value of the debt being guarantees. Currently, the
FDIC charges only 75 basis points.
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