November 15, 2012Daily Rates & Viewpoints From the Officers & Staff of TIB.

FDIC Recommends TAG Expiration Notice

In last week’s FIL-45-2012 - Notice of Expiration: Temporary Unlimited Coverage for Noninterest-Bearing Transaction Account, the FDIC encourages banks “as a matter of prudent commercial banking practice” to give bank customers notice of the TAG expiration and impact to their insurance coverage limits. Barring a 12th hour law change, the FDIC will no longer insure noninterest bearing accounts (aka demand deposit accounts) separately and thus deposit insurance coverage shall revert to traditional rules. The Dodd-Frank Act, that made TAG effective, only required official notification of the enactment and did not specify expiration notification, however, the FDIC believes such notification is necessary. 

The FDIC provided “model language” in both long and short versions for making notification. The long version is as follows:
 
NOTICE OF EXPIRATION OF THE TEMPORARY FULL FDIC INSURANCE COVERAGE FOR NONINTEREST-BEARING TRANSACTION ACCOUNTS
 
By operation of federal law, beginning January 1, 2013, funds deposited in a noninterest bearing
transaction account (including an Interest on Lawyer Trust Account) no longer will receive unlimited deposit insurance coverage by the Federal Deposit Insurance Corporation (FDIC). Beginning January 1, 2013, all of a depositor’s accounts at an insured depository institution, including all noninterest-bearing transaction accounts, will be insured by the FDIC up to the standard maximum deposit insurance amount ($250,000), for each deposit insurance ownership category. For more information about FDIC insurance coverage of noninterest-bearing transaction accounts, visit http://www.fdic.gov/deposit/deposits/unlimited/expiration.html
 
Alternatively, a statement stuffer or account statement notice could have the following shorter language due to space constraints:
 
NOTICE: By federal law, as of 1/1/2013, funds in a noninterest-bearing transaction account (including an IOLTA/IOLA) will no longer receive unlimited deposit insurance coverage, but will be FDIC-insured to the legal maximum of $250,000 for each ownership category. For more information, visit http://www.fdic.gov/deposit/deposits/unlimited/expiration.html
 
The FDIC further states that all notices required for the enactment of TAG are removed from the bank no later than January 2, 2013. 
 
As a side bar note, I will add make sure you have done your stress testing for the loss of TAG funds. A stress test assuming that 25%, 50% and 100% of TAG funds run-off and how you will manage the outflows would be a good test. 
 
You may access the entire publication at the following link:
http://fdic.gov/news/news/financial/2012/fil12045.html


Chuck Phelan Chuck Phelan
Chief Treasury Officer
cphelan@mybankersbank.com

Market Levels @ 7:49 AM CST

TIB Fed Funds & MMDA Rates - Previous Day
Agent 0.20% Prin 0.05% MMDA 0.30%
STAR Prin 0.10% STAR MMDA 0.35%
Key Indices/Commodities
1 - Month LIBOR 0.20% Dow Jones 12570.95
3 - Month LIBOR 0.31% NASDAQ 100 2846.80
1-Yr LIBOR 0.85% S&P 500 1350.90
1-Yr CMT 0.18% Spot Gold 1721.90
Prime 3.25% Spot Silver 32.66
3-yr LIBOR Swap/Offer 0.45% Spot Crude Oil 86.48
5-yr LIBOR Swap/Offer 0.76% CRB Index 293.92
3 Mo - Fed Fund Futures 0.13% 6 Mo - Fed Fund Futures 0.13%
US Treasury Yields US Non-Callable Agency Yields
Yield Maturity Yield Spread
0.00% 90 - Days    
0.03% 180 - Days    
0.19% 2 - Year 0.25% 6bp
0.28% 3 - Year 0.33% 5bp
0.59% 5 - Year 0.76% 17bp
1.57% 10 - Year 1.73% 16bp
2.71% 30 - Year    
138 BPs Yield Curve(2's-10's)
Sample 1x Callable Agency Issues
Description Call Date YTC YTM
FHLMC 2 05/26/23 11/14 2.00% 2.00%
Select MBS Levels
Description Coupon Yield Spread/Duration*
15-Yr FNMA 3.00% 1.42% 96 / 3.62
30-Yr GNMA 3.50% 2.29% 95 / 7.27
*Duration @ 12 month Historical CPR
Morning Commentary: Blake Scharlach

On October 17, 2012, the Dow was approximately 13,550 and the 10 year Treasury was 1.82%.  Now, November 15, 2012, less than a month later, the Dow is poised to open down 20 to 12,550 and the 10 year Treasury is 1.61%.  While the current events haven’t necessarily been good for your 401(k), the events of the past month have lined up well for your bank’s investment portfolio.  The realization that Europe currently has no fix for its woes, combined with the re-election of a Fed-friendly president, is sending us the first major buy signal we’ve had in quite some time. CPI numbers came in as expected at around 2% ex-food and energy.  Initial jobless claims came in very high at 439K versus a projected 375K.  It’s primarily being blamed on Sandy, so it’ll take a few weeks to sort out the long-term ramifications.  If the nature of corporate earnings releases in the past month are any indication, things are getting weaker out there.  Keep an eye out there for good-looking bonds.  It’s time for banks to be buying.

Information contained herein is based on sources we believe to be reliable but its accuracy is not guaranteed. Customers should rely on their own outside counsel or accounting firm for specific circumstances. The securities, yields or levels discussed herein are for illustration purposes and are not guaranteed, not obligations of any bank, thrift or other entity and are not insured by the FDIC.

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