Extending the Transaction Account Guarantee program past its scheduled expiration on Dec. 31 seemed unlikely a few weeks ago, but the measure has a new champion in Senate Majority Leader Harry Reid, D-Nev., who has proposed extending the program for another two years.
Reid's bill, S. 3637, would temporarily extend the TAG program, which provides unlimited Federal Deposit Insurance Corp. insurance on no-interest checking accounts used mainly by businesses. The senator introduced the stand-alone bill under Rule 14, which would allow it to bypass committee hearings and go straight to the Senate floor for a vote, indicating that it's very likely to get approved.
The FDIC created the TAG program in the depths of the financial crisis in 2008 to protect against bank runs. Congress extended the program for two additional years in 2010 as part of Dodd-Frank. Without congressional action, FDIC insurance on these accounts will revert back to the original cap of $250,000 per account.
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According to the Independent Community Bankers of America (ICBA), companies and municipalities hold about $1.4 trillion of deposits in the accounts. With unlimited FDIC insurance, treasurers have felt comfortable leaving funds in a single account at one bank. Without an extension, they will likely move the money into multiple bank accounts, keeping the total in each account under $250,000, or out of the banking system entirely and into money-market funds.
"TAG is the fiscal cliff for the financial services sector," says Paul G. Merski, the ICBA's chief economist and head of congressional relations. "Without the legislation, $1.4 trillion of deposits will become a risk asset at the stroke of midnight on Dec. 31."
Sen. Reid's bill would cover deposits at both commercial banks and credit unions and would require the FDIC and the National Credit Union Administration to assess their members for any losses resulting from the program.
Reid's bill doesn't mean passage is a slam dunk but does indicate it has strong support, Merski says. "Now it has the highest level of support in the United States Senate," he says. "It has a very viable chance of passage in the last three weeks of the session."
James Ballentine, chief lobbyist at the American Bankers Association, pictured at right, is a little more skeptical about passage. "It's still up in the air," he says. "The introduction of a bill doesn't mean the passage of a bill. It's certainly helpful to get someone in a leadership position to support this, but as we know from this Congress, that doesn't necessarily guarantee anything."
He noted that the House would also have to pass legislation. The ABA supports a two-year extension of TAG, but Ballentine said his group is still reviewing the costs associated with it.
Using Rule 14 means the bill could come up for a vote at any time, Merski says. The bill could also become part of another moving piece of legislation, such as bills to resolve the so-called fiscal cliff, which might increase the chances the TAG extension is approved, assuming Congress can resolve that bigger issue.
While the bill does have its opponents, including Sen. Bob Corker, R-Tenn, a member of the Senate Banking Committee, Merski says the measure has a strong likelihood of passage, particularly because it's essentially self-funding.
"Like any piece of legislation, there will be a handful of opponents," Merski said. "In 2010 there was a bipartisan, noncontroversial effort to extend it. I see the same thing playing out in this Congress."
For previous coverage, see Bye Bye, Unlimited FDIC Coverage.
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