The Federal Deposit Insurance Corporation released its latest "FDIC Quarterly," "a comprehensive summary of the most current financial results for the banking industry, along with feature articles." The latest edition shows a gradual recovery in the banking sector, a continued and growing reliance on the unlimited FDIC insurance of the Transaction Account Guarantee program, and a huge negative balance in the Deposit Insurance Fund. The report is also evidence that the temporary support measures extended to the banking sector dwarf those facilities offered to support the money market mutual fund industry.

The Quarterly says, "The FDIC Board approved the Temporary Liquidity Guarantee Program (TLGP) in response to major disruptions in credit markets. The TLGP improves access to liquidity for participating institutions by fully guaranteeing non-interest-bearing transaction deposit accounts and by guaranteeing eligible senior unsecured debt. As of December 31, 2009, more than 86 percent of FDIC-insured institutions have opted in to the Transaction Account Guarantee Program, and 7,808 eligible entities have elected the option to participate in the Debt Guarantee Program. Approximately $834 billion in non-interest-bearing transaction accounts was guaranteed as of December 31, 2009, and $309 billion in guaranteed senior unsecured debt, issued by 84 entities, was outstanding at the end of the fourth quarter."

It explains, "A final rule extending the Transaction Account Guarantee component of the TLGP six months, to June 30, 2010, was adopted on August 26, 2009. Entities participating in the Transaction Account Guarantee program had the opportunity to opt out of the extended program. Depository institutions that remain in the extended program will be subject to increased fees that are adjusted to reflect the institution's risk.... Institutions participating in the TAGP provided customers full coverage on noninterest-bearing transaction accounts for an annual fee of 10 basis points through year-end 2009. Fees for qualifying noninterest-bearing transaction accounts guaranteed between January 1, 2010, and June 30, 2010, will be based on the participating entity's risk category assignment under the FDIC's risk-based premium system. Annualized fees will be 15, 20, or 25 basis points, depending on an institution's risk category.... As of December 31, 2009, a total of $10.3 billion in fees had been assessed under the DGP."

The FDIC publication also says, "Total deposits increased by $125.7 billion (1.4 percent) [to $9.227 trillion], domestic deposits increased by $143.6 billion (1.9 percent), and foreign office deposits decreased by $17.8 billion (1.2 percent). Domestic savings deposits and interest-bearing checking accounts increased by $194.1 billion (5.4 percent). Domestic noninterestbearing deposits increased by $89.8 billion (6.1 percent), and domestic time deposits decreased by $140.4 billion (5.6 percent)." It adds that $5.392 trillion of insured deposits is currently covered by the deposit insurance fund (DIF), which is running a balance of negative $20.9 billion.

Given the huge balances remaining in the TAG program, we expect much of this money to migrate back towards money market mutual funds in the second half of the year. Rising interest rates and rising FDIC fees should also begin to tilt the playing field back in favor of money market funds at some point during 2010 or 2011.

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