(Adds details of qualifying debt, terms of guarantee)
The Federal Deposit Insurance Corp voted to make a "very narrow targeted improvement" to its Temporary Liquidity Guarantee Program (TLGP). Separately, it voted to increase the fees it charges banks to insure deposits.
FDIC officials said banks have been able to improve their access to funding through the program. At the end of 2008, 64 financial firms had $224 billion in outstanding debt covered by the FDIC facility.
The TLGP originally precluded any "convertible debt." The FDIC said on Friday that it wants to give eligible banks more flexibility to obtain funding from investors with longer-term investment horizons.
The agency also said it hopes the expansion will reduce the concentration of FDIC guaranteed debt maturing in mid-2012.
To be eligible for the federal guarantee, the mandatory convertible debt must have been issued on or after Feb. 27, 2009. The debt instrument must also provide for the mandatory conversion into common shares on or before June 30, 2012.