The backed-Aaa rating reflects that the FDIC guarantee is unconditional and irrevocable and backed by the full faith and credit of the Aaa-rated United States government. The outlook for the backed-Aaa ratings is stable, in line with that of the US government.
Moody's will assign backed -Aaa and backed Prime-1 ratings with a stable outlook only to those issuers that are currently not rated at that level and participate in the program. Backed-Aaa ratings will only be assigned to those obligations maturing prior to the expiration of the FDIC guarantee on June 30, 2012. To reflect the stand-alone credit profile of the issuers and the exposure of creditors once the guarantee is withdrawn, Moody's will also maintain the stand-alone short-term ratings of the issuers. The backed Prime-1 rating will be withdrawn upon maturity of short term debt guaranteed under the program.
The FDIC's obligation under this program will be triggered by an uncured payment default on the guaranteed obligations, and the FDIC will satisfy the guarantee obligation by making scheduled interest and principal payments under the terms of the guaranteed debt instrument. Moody's believes this feature of the guarantee program ensures timely payment.
Moody's views this guarantee positively for Bank Financial Strength Ratings as well as for banks' non-guaranteed debt issues, as it should restore market confidence -- at least during the guarantee period -- in the institutions' liquidity. However, as such support had been already factored into the current ratings and given the temporary nature of the guarantee (until June 30, 2012) this will not impact the long-term bank deposit ratings or debt maturing after the end of the guarantee period.
In addition, the implementation of the guarantee program scheme does not threaten the Aaa rating of the United States government. The likelihood that a situation could unfold where a large-scale activation of the guarantee would materially impair the United States government's balance sheet is sufficiently remote as not to weigh on its Aaa rating.
Key terms of the guarantee:
Under the program the FDIC will guarantee all senior unsecured debt which satisfies certain eligibility requirements (including, in the case of debt issued after December 5 2008, a minimum stated maturity of at least 31 days) issued by insured depository institutions and certain affiliates and holding companies between October 14, 2008 and June 30, 2009. The guarantee expires on June 30, 2012 and participating entities have until December 5, 2008 to opt out of the guarantee program.
There are various limitations on the scope of the guarantee, including (among others):
The maximum amount of debt that is guaranteed under the program for each participating entity is subject to a cap that is generally equal to 125% of the participating entity's senior unsecured debt outstanding at September 30, 2008 and maturing between this date and June 30, 2009 (including debt with a stated maturity of 30 days or less).
The holding company's capacity under this cap may be applied to a subsidiary insured depository (leaving the holding company with no capacity under the program). This does not apply in reverse, a holding company cannot utilize an insured depository's capacity under the cap.
For insured depositories which had no senior unsecured debt outstanding at September 30, 2008 the alternative debt guarantee cap is 2% of total liabilities. For other participating entities that had no senior unsecured debt outstanding at September 30, 2008, the cap will be determined on a case-by-case basis. The cap for any entity that becomes an eligible institution for the program after October 13, 2008 will also be evaluated on a case-by-case basis.