The US regulators changed a Federal Deposit Insurance Corp debt guarantee programme to help unfreeze credit markets by encouraging American banks to issue hundreds of billions of dollars in new debt.
The market could see roughly $50 billion in new debt issued each month through June 30 because of lower fees and other technical changes, according to a Bank of America report. The FDIC board agreed to modify the agency's Temporary Liquidity Guarantee (TLG) program, which was initially put in place last month to reduce banks' funding costs and increase their liquidity.
The program is expected to fill a financing gap for banks shut out of the corporate bond market by skyrocketing yields.
Without the FDIC guarantee program, banks may have been forced to pay some of the highest yields in decades to help refinance the debt. The FDIC program is intended to insure a pool of about $1.4 trillion in new senior unsecured debt and also up to $500 billion in transaction deposit accounts, which businesses typically use to meet payroll and pay vendors.
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