Fitch Ratings recently said that programs that pool FDIC-insured bank deposits will grow in popularity in 2013 as a result of the expiration of the Transaction Account Guarantee program.
The programs provide a government guarantee on high-value deposits by dividing them into smaller deposits across a number of participating institutions, which qualifies the deposits for FDIC insurance protection. While many of the institutions that participate in the programs could be larger banks, many of the institutions are likely to be small banks with a limited depositor base and less access to capital markets.
Fitch Ratings said that bank failure remains a risk with the programs. If an institution participating in the programs should fail, the FDIC will transfer the deposit obligations to another healthy financial institution, but if the FDIC cannot locate a receiver for the deposit obligations, it will establish a payment system for insured principal and accrued interest to be returned to the failed bank’s depositors within a few days. The funds, however, may not be available immediately.
Under the FDIC’s Transaction Account Guarantee — or TAG — program, non-interest bearing transaction accounts with more than $250,000 were insured by the FDIC. The program was enacted after the financial crisis to quell investor fears. Though the program expired last December, the Certificate of Deposit Account Registry Service and Federally Insured Cash Account offer full FDIC insurance coverage and yield in excess of the U.S. Treasury’s rate of comparable maturity.