Members of the National Association of State Treasuries are urging the Obama administration and Congress to push through a two-year extension of the Transaction Account Guarantee program.
Launched by the FDIC in 2008 in the wake of the financial crisis, the TAG program guarantees funds held in non-interest bearing accounts and was crafted to increase confidence in the banking system.
“The TAG Program helps ensure the safety of public funds,” Kate Marshall, the president of NAST and treasurer of Nevada, said. “While NAST understands that some of the nation’s largest banks may oppose its continuation, we believe it would be imprudent to abruptly terminate this program without providing a proper time period for transition.”
State and local municipalities, as well as universities, charities, hospitals and many of America’s largest companies, rely on the program to protect their funds from market volatility and economic downturn. Extending the TAG program would allow municipalities without effective collateralization requirements ample time to implement policies while protecting public funds from economic instability and the looming fiscal cliff.
“States and local governments are already experiencing some impact of the termination of the TAG Program,” Nancy Kopp, Maryland’s treasurer, said. “A reduction in the availability of U.S. Treasury and Agency securities due to increased demand for these products is impacting short-term rates…Without question, the TAG Program should not be abruptly eliminated from the U.S. banking system. A phase-out of the program will reduce the current volatility of the financial markets and provide ample time for state and local governments to consider safe alternative placement for taxpayer funds.”
Delaware Treasurer Chip Flowers said that while the health of the U.S. financial system has improved since the TAG program was implemented, many challenges remain.
“The TAG program provides federal protection to public funds, increases stability and helps diffuse money throughout the banking system to avoid concentration of deposits in a small number of large banks—potentially creating deposit allocations in large banks equal to or higher than pre-2008 levels,” Flowers said. “We hope that the White House and Congress will not prematurely terminate this critical program until these challenging issues are addressed and state and local governments have sufficient time to find viable alternatives to protect taxpayer funds.”