Message from the Commissioner

    October 23, 2008

    To: California State Chartered Banks
    Re: TARP Capital Purchase Program / FDIC Temporary Liquidity Guarantee Program

    As you know, the Treasury Department's implementation of the TARP Capital Purchase Program requires interested banks to submit an application to the appropriate federal banking agency by November 14.

    DFI surveyed its bank licensees regarding their interest in participating in this program last week. Of the respondents, 55% indicated preliminarily that they plan to participate in this Program.

    We at DFI recognize that each bank's circumstances are different and that accepting government capital through this program comes with some costs. However, I urge you to think carefully about possible future economic conditions when making a decision about your participation in this program. None of us knows what the future may hold, but it is certainly a good time to be cautious about your future capital condition. The Treasury program must be thought of as a one time offer.

    Interested banks will also have to file an application with DFI for an order of exemption that will allow the bank to issue the preferred shares to Treasury. This can be accomplished by a letter to us with a copy of the application to the federal banking agency attached. We expect to be able to turnaround these exemption requests in a single day.

    Some banks will need to resolve certain issues in order to participate. For example, if existing articles of incorporation do not authorize preferred stock, a bank will have to amend its articles, requiring a special shareholders meeting. Per Corporations Code Section 601, a minimum 10 day notice of a special meeting is required and the processing of the articles amendment through the Department and with the California Secretary of State normally takes a day or two.

    The FDIC’s Temporary Liquidity Guarantee Program will guarantee certain newly issued senior unsecured debt of banks and certain holding companies and will provide full coverage of non-interest bearing deposit transaction accounts regardless of dollar amount for a period of time. Participants will be charged a 75 basis point fee to protect their new debt issues, and a 10 basis point surcharge will be added to a participating institution’s current insurance assessment in order to fully cover the non-interest bearing transaction accounts. Institutions that choose not to participate in deposit program must opt-out or be assessed their participation after the initial 30 day period is over.

    Our survey indicated that 21% of the respondents plan to take advantage of the guarantee of newly issued unsecured debt, and 75% of our respondents plan not to opt-out of full deposit insurance coverage of their non-interest bearing deposits.

    With respect to the non-interest bearing deposit account program, I urge any bank that is interested in attracting and retaining business relationship accounts to remain in this program. Community banks have had a difficult time competing with large institutions for these types of relationship-based accounts in recent years, and this program should improve the balance.


    William S. Haraf
    Department of Financial Institutions
    111 Pine Street, Suite 1100
    San Francisco, CA 94111