Published by Bloomberg News Agency on December 8, 2012
Reid Sets Senate Cloture Vote on Bill To Extend TAG Program Through 2014
The Senate is scheduled to hold a cloture vote Dec. 10 on legislation that would extend the transaction account guarantee (TAG) program for another two years. Sen. Harry Reid’s (D-Nev.) bill (S. 3637) would keep the Federal Deposit Insurance Corporation TAG program in place until the end of 2014. Under the motion to be considered, 60 votes are needed to proceed to the bill. Adopted as a temporary measure in 2008 and later extended by Congress, the program has allowed banks to pay an additional premium to insure transaction accounts in excess of the FDIC’s current $250,000 deposit insurance limit. It is currently set to expire at the end of 2012 (233 DER EE-9, 12/5/12).
Concern to Avoid ‘Destabilizing Blow.’
“If Congress fails to extend this critical program before its Dec. 31 deadline, nearly $1.5 trillion in TAG deposits would become abruptly uninsured overnight,” Independent Community Bankers of America (ICBA) President Camden Fine said Dec. 7. “This will be a destabilizing blow to Main Street financial institutions and the communities they serve.” Members of the National Association of State Treasurers have joined the last-minute push for an extension. State and local governments and a range of private entities from small businesses to large corporations rely on the security of federally-insured TAG accounts, the group said Dec. 6, and would need more time to transition into safe alternatives for their funds. The program provides full insurance of noninterest bearing transaction accounts, which are essentially checking accounts used by businesses, governments, and other organizations for payroll and other recurring expenses. It was created at the height of the financial crisis four years ago to prevent a sudden withdrawal of deposits.
“While we recognize that the health of the U.S. banking system has improved since the inception of the TAG Program in 2008, there remain many challenges facing the system over the course of the next few months—including issues relating to the ‘fiscal cliff,’ potential financial contagion from problems in the Eurozone, slow economic growth and the upcoming debate on the U.S. debt ceiling,” Delaware State Treasurer Chip Flowers said in a statement. “We hope that the White House and Congress will not prematurely terminate this critical program until these challenging issues are addressed and state and local governments have sufficient time to find viable alternatives to protect taxpayer funds,” he said.
Big Banks, Credit Unions Oppose Bill
House Republicans generally oppose any new extension of TAG and some in the financial services industry support that view. They say that continuing the program is unnecessary because banks are in far better shape than 2008. The Financial Services Roundtable, which represents many of the nation’s largest banks, has said that a move to keep TAG alive may create a “misperception of instability” in the banking system and also raises moral hazard concerns. The Credit Union National Association (CUNA) and its members are urging senators to block Reid’s bill. Banks’ capital is at its highest levels ever and liquidity has increased steadily since the crisis, the group said Dec. 7. “It looks like banks are doing quite well. Why do they continue to insist that they need a taxpayer backstop in the form of TAG?” CUNA said in a statement. The National Association of Federal Credit Unions (NAFCU) has said that it would support a TAG extension—if senators added a provision that would allow credit unions to lend more money to the business sector.
NAFCU has been lobbying Reid to include a version of S. 2231, the Small Business Lending Enhancement Act, which would increase limits on commercial lending from 12.25 percent of a credit union’s assets to 27.5 percent of assets. The majority leader has not said whether the Senate will consider amendments to his bill. NAFCU has also said that the TAG extension bill must include insurance coverage of lawyers’ trust accounts (IOLTAs) in credit unions. Such accounts in banks are already federally insured. “Given the limited time frame Congress is working with, considering a TAG extension without IOLTA coverage and a member business lending increase for credit unions and their 95 million members would be unconscionable,” Brad Thaler, NAFCU vice president of legislative affairs, said in a Dec. 7 statement.
