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FDIC encourages “adequate notice” of TAG expiration

The FDIC encouraged banks on Monday to notify customers in advance that the temporary unlimited deposit insurance coverage for non-interest bearing accounts under the Transaction Account Guarantee program will expire Dec. 31.

Beginning January 1, non-interest-bearing transaction accounts will be “aggregated with any other deposits held by the same person in the same ownership category, with the total insured up to the standard maximum deposit insurance amount, which currently is $250,000.”

The FDIC said that the Dodd-Frank Act does not mandate a specific time to give notice about the coverage expiration, adding that “[insured depository institutions], as a matter of prudent commercial practice” should “remind their…depositors about the pending expiration and the impact that expiration will have on their deposit insurance coverage.”

The TAG program was established in 2008 as part of the FDIC’s Temporary Liquidity Guarantee Program in response to the developing financial crisis. The program allowed banks with all non-interest-bearing accounts to have unlimited coverage by the FDIC in order to quell the fears of depositors.

Community banks have called for an extension of the coverage, and analysts estimate that as much as $1.6 trillion in deposits could move from community banks to megabanks like JPMorgan and Citibank if the program is not kept in place.

“Because the global banking system and the economic recovery remain fragile, expiration of full insurance coverage for transaction accounts carries the risk of abrupt dislocation of funds and other unintended consequences for the financial sector,” the Florida Banker Association said, according to Miami Today.

The FDIC said that it plans to issue additional guidance if Congress modifies the mandate.

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