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U.S. firms to reduce bank balances if TAG program expires

A recent survey by the Association for Financial Professionals revealed that U.S. firms plan to reduce their bank account balances by a 20 percent average if the Transaction Account Guarantee program is not extended.

The survey revealed that the firms plan to put some of the funds from business checking accounts into money market mutual funds, Reuters reports.

The FDIC is poised to terminate the TAG program, which insures bank deposits of more than $250,000 in non-interest bearing checking accounts. The program was established in 2008 at the height of the financial crisis as part of an effort to ensure liquidity and increase confidence in the U.S. financial system.

Recent data from the FDIC revealed that, under the TAG program, money in large business accounts increased to $1.49 trillion at the end of the third quarter.

“Should unlimited FDIC insurance expire at the end of the year, 51 percent of organizations expect to move at least some of their cash and short-term investment portfolios away from non-interest bearing bank accounts into other investment vehicles,” AFP said, according to Reuters.

Though estimates vary on the dollar amount of withdrawals expected if TAG expires, research firm Wrightson ICAP estimates that $200 billion to $250 billion will be withdrawn in early 2013.

The TAG program was originally scheduled to end December 2009 but was extended to 2012 under the 2010 Dodd-Frank Act. The program has positioned checking accounts against money market funds as a result of TAG’s federal guarantee and an increased level of caution by firms following the crisis, Reuters reports.

Twenty-eight percent of organizations said they would reduce bank deposits between 10 and 24 percent if TAG expires, while 21 percent plan to reduce holdings by between 25 and 49 percent. Forty-two percent of firms said they would move at least some funds into money market funds, while 41 percent said they would invest in Treasury securities or bonds.

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