Debt Guarantee Authority under the CARES Act

Banking & Financial Institutions COVID-19 Resources

Section 4008 of The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) grants authority to the Federal Deposit Insurance Corporation (FDIC) to guarantee obligations of solvent insured depository institutions or their holding companies.  This authority, which was also granted to the FDIC in response to the 2008 financial crisis, specifically authorizes the FDIC to fully guarantee deposits held in noninterest-bearing transaction accounts at FDIC-insured institutions.  This could lead the FDIC to create a program similar to the Transaction Account Guarantee Program implemented during the financial crisis.

The legislation provides that any program or guarantee established under this section must terminate not later than December 31, 2020.  While Section 4008 of the CARES Act provides that any guarantee program established under this FDIC authority must contain a maximum amount of outstanding debt that is guaranteed, the CARES Act does not mandate a ceiling on that maximum amount.

The CARES Act also authorizes the National Credit Union Administration Board to provide unlimited share insurance coverage on any noninterest-bearing transaction account at any federally insured credit union through December 31, 2020.

While insured depository institutions have not to date experienced the same liquidity issues that were present in 2008, the grant of this authority should give further comfort to depositors and creditors of the financial security of U.S. insured depositories.