Morgan Stanley, JPMorgan To Stop Issuing FDIC-Guaranteed Debt

Published: 17-Jun-2009

The banks are confident that they are capable of operating more independently.

In a move to snap their financial association with the US banking regulator and send signal to investors that they are capable enough to survive without its help, Morgan Stanley and JPMorgan Chase are going to stop issuing new Federal Deposit Insurance Corporation (FDIC)-guaranteed debt. Both are scheduled to pay $10 billion and $25 billion respectively, to the treasury.

JPMorgan, Morgan Stanley, and Goldman are among the 10 financial groups that won clearance last week to repay money.

The FDIC guarantees, which were initiated to rescue the teetering financial system, enabled the battered banks to sell AAA-rated bonds at a lower interest rate than investors would have demanded otherwise. As per the FDIC’s website, under the Temporary Liquidity Guarantee Program (TARP), the FDIC has so far guaranteed $334.7 billion of debt outstanding, and in return, assessed banks with $7.8 billion in fees for the service, as of April 2009.

Now, the onus is on both the banks to prove that they can issue debt without a government guarantee, before being allowed out of the TARP program.

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