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The Resource for the Global Finance Profession

Senate Leadership Aims to Extend TAG for Two More Years

  • By Konstantine Kastens, Government Relations Administrator
  • Published: 2012-11-28

Senate Majority Leader Harry Reid (D-NV) plans to introduce a two-year extension of the Transaction Account Guarantee (TAG), a program providing unlimited deposit insurance coverage for non-interest bearing accounts, according to news reports. Created by the Federal Deposit Insurance Corporation (FDIC) in 2008 to supplement liquidity and prevent bank runs in the wake of the financial crisis, and then extended in 2010 under the Dodd-Frank Act, TAG is set to expire by the end of the year unless Congress decides otherwise.

Reid's bill is expected to amend the current program by requiring that TAG offset its own estimated losses through collected fees, effectively removing it from FDIC cost assessments.

Lawmakers have been reluctant to extend TAG a third time, arguing the program was intended only for emergency liquidity relief in the immediate aftermath of the 2008 financial crisis and that further extension would stifle competition. Congressional Republicans generally oppose any new extension of TAG, including House Majority Leader Eric Cantor (R-VA), who recently pledged to fight another extension, according to the Wall Street Journal. Meanwhile, Senate Banking Committee Chairman Tim Johnson (D-SD) authored a letter with Senator Sherrod Brown (D-OH) in late July to the director of the Office of Management and Budget, Jeffrey Zients, seeking his support in continuing the program.

Smaller banks widely support extending TAG because they fear that its expiration will result in a flight of deposits to larger banks that, by nature of their size, enjoy presumed government backing. With Congress currently entangled in preventing a mass of automatic cuts and across-the-board tax cuts to expire by January 1, 2013, bringing up TAG for a vote before that same date of expiration is expected to be a challenge.

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All rights reserved.

Copyright © 2014 Association for Financial Professionals, Inc. - All rights reserved.
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