The Senate on Thursday voted down a two-year extension of the Transaction Account Guarantee program, which provides unlimited insurance guarantees to non-interest bearing accounts, and the program will be allowed to expire at year’s end.
The legislation, which was sponsored by Sen. Harry Reid (D-Nev.), the majority leader in the Senate, would have extended the program through 2014, SFGate reports.
Non-interest bearing accounts are used by local and state governments, businesses, hospitals and other areas to keep funds safe from market volatility and instability. Critics of the TAG program maintain that it deters investors and provides a safe haven for the wealthy.
Because the measure failed to garner the necessary support, federal insurance for TAG accounts will revert back to the $250,000 mark that applies to almost all other bank accounts. The increased insurance measure was established in 2008 in the wake of the financial crisis in order to restore confidence in the U.S. banking system. The program was extended again in 2010, according to SFGate.
Community banks supported the two-year extension, saying that the financial recovery is still at a critical point and that the reduction of federal insurance would lead depositors to move their money to megabanks that are less susceptible to economic downturn.
Credit unions, however, opposed the measure, saying that allowing the program to expire would create a more level playing field and that the crisis-inspired program is no longer necessary.
“We are not in a financial crisis anymore,” Sen. Pat Toomey (R-Penn.) said, SFGate reports. “I don’t understand how you can justify it now.”
Senate Republicans, led by Toomey, said that the bill did not meet a requirement that legislation not add to the federal deficit. In a 50-42 procedural vote, the legislation fell short of the 60 votes needed to waive the requirement.