Senate moves to final vote on TAG extension

Tim Johnson

The Senate has scheduled a final vote for Thursday on a measure that would extend the Transaction Account Guarantee program, which insures more than $250,000 in a non-interest bearing checking account.

The bill, which is supported by the Obama administration and much of the banking industry, will face opposition in both the Senate and the House, according to The New York Times.

Originally created in 2008 in the wake of the recent financial crisis, the TAG program was extended in 2010 until the end of this year. The program, which is managed through the FDIC, is used by state and local municipalities, hospitals and other businesses to protect their funds from market instability.

Bankers across the nation have urged Congress to extend the program for another two years. The Independent Community Bankers of America said that $1.5 trillion in non-interest bearing accounts would be affected, and industry experts project that between $200 billion and $300 billion will move out of banks if the program is terminated, The New York Times reports.

The TAG program is financed using FDIC bank assessments in a fashion similar to that of the standard deposit insurance program. Taxpayer funds could be at risk if the program does not have adequate funds to pay the insured accounts, though that has never occurred. The FDIC said that TAG accounts comprise three percent of all losses due to bank failures.

Sen. Tim Johnson (D-S.D.) said on Tuesday that the program is essential for community banks.

“This program allows these institutions to serve the banking needs of the small businesses in their communities, keeping deposits local,” Johnson said, according to The New York Times.

Senate Majority Leader Harry Reid (D-Nev.) however, said after approval to move the bill to a final vote that he would not allow any amendments to the legislation, a move opposed by Republicans.

Both parties are still negotiating on whether changes to the bill would be allowed, but if the parties cannot come to an agreement, Senate Republicans are unlikely to provide the 60 votes necessary to move the bill forward in the legislative process.

Community bankers maintain that they will be unable to continue serving small businesses if the program expires.

Cynthia Blankenship, the vice chairman of the Texas-based Bank of the West, said that 15 percent of its assets are protected under the TAG program.

“I don’t think all of our deposits under the program would go away if it expired,” Blankenship said, according to The New York Times. “But a lot of them will convert to interest-bearing accounts, which cost us more and drives up the price of credit.”

Big banks, however, as well as the Credit Union National Association, oppose the extension. Credit unions maintain that allowing the program to expire would level the playing field to allow them to expand lending to small businesses.

“TAG is a crisis-inspired program which Congress intended to be temporary,” CUNA President Bill Cheney said, The New York Times reports. “The crisis is over. The program should expire.”