FDIC Not Insuring Fed Funds

While the FDIC voted to approve a plan to guarantee $1.4 trillion in bank debt, it also decided not to extend that guarantee to fed funds transactions as it had earlier proposed to do.

Which is actually a good thing. Here was Wrightson-ICAP last month:

The inclusion of short-term fed funds in this program still strikes us as a mistake.  That is one market that has been working reasonably well to re-allocate liquidity among all but the most questionable credits.  Imposing a 75 basis point insurance fee on the borrowing of all banks in that instrument in order to preserve market access for the most vulnerable institutions seems like overkill.  (After all, that is what the discount window is there for.)

The FDIC's view:

Another change is that short-term debt issued for one month or less will not be included in the [guarantee program], consistent with the objective of the program to facilitate longer term lending.

So which is it? Would the guarantee have reduced liquidity because of the added cost of insurance, or would it have decreased the incentive to move out of the fed funds market?