The FDIC guaranteed new bank debt and enrolled banks automatically, not on request.

In the weeks after Lehman Brothers collapsed, banks were stuck with a self-fulfilling fear: each worried that borrowing would reveal weakness, so none would lend, and even healthy firms could not roll over their debts.

On October 14, 2008 the FDIC created the Debt Guarantee Program under a systemic-risk exception, guaranteeing new senior unsecured debt of participating banks and holding companies for up to about three years. It automatically enrolled eligible institutions and allowed only a one-time, irreversible opt-out.

Because participation was the default, no institution was singled out, and the FDIC charged a maturity-based fee. The guarantee let banks borrow with essentially public backing, calming the funding panic. The program ultimately stood behind 122 institutions and about $618 billion of debt, collected $10.4 billion in fees and paid out just $153 million on six defaults.

Opt-out guarantee removes the 'who needs it' tell

A visible bailout choice stigmatizes whoever signs up

Automatic enrollment made healthy banks participate too

Maturity-based fees covered the program's expected losses

The guarantee bypassed the least-cost rule via the systemic-risk clause

A backstop that requires individual sign-up drives away the very institutions that need it; make the rescue the default and let the healthy quietly walk away.

The guarantee, along with capital injections and the commercial-paper facility, reopened unsecured funding. The program cost the insurance fund almost nothing because fees exceeded the tiny default losses, but its expansive use of the systemic-risk exception led Dodd-Frank to tighten the FDIC's emergency authority afterward.