Geithner Angers Bankers by Opposing TAG Extension

WASHINGTON — Treasury Secretary Timothy Geithner spoke out Thursday against an extension of the unlimited deposit insurance guarantee for certain transaction accounts, dealing a blow to banks that are lobbying Congress for a two-year reprieve.

During an appearance before the Senate Banking Committee, Geithner was asked whether the financial crisis-era program, which is scheduled to expire at the end of the year, should be extended.

"Our judgment so far has been it's not necessary to extend it. That's been the judgment of the relevant authorities so far," Geithner responded. "But I know this is an issue and a concern to many people, and we're going to have to look at those concerns carefully."

The Treasury secretary's comments drew a harsh response from Camden Fine, president of the Independent Community Bankers of America. The community banking trade group has led the charge to extend the Transaction Account Guarantee program, known as TAG.

"Obviously ICBA was less than pleased with the secretary's response to the question. What really infuriates me is that Treasury doesn't bat an eye to dole out billions of taxpayer dollars to too-big-to-fail firms," Fine said. "But when it comes to thousands of Main Street community banks who would pay for the program themselves, not one dime of taxpayer dollars, Treasury gives them the back of the hand."

The Federal Deposit Insurance Corp., which guarantees checking deposits over $250,000 in noninterest bearing transaction accounts, and assesses banks to pay for the program, has not expressed a view on whether an extension is appropriate.

"So I don't know why the secretary felt a need to weigh in on the issue at all," Fine said. "It doesn't involve Treasury dollars. It doesn't involve taxpayer dollars."

Geithner's comments came six days after the American Bankers Association announced its support for a two-year extension of the program. That announcement had seemed likely to provide a boost to the proposal, since banking trade groups were finally presenting a unified front following months of debate within the industry.

In recent weeks, bank industry lobbyists have been trying to persuade members of Congress that an extension makes sense.

Time is running short, with the House and Senate scheduled to adjourn next week. The two chambers will then be in recess until after Labor Day, at which point most members of Congress will be in full campaign mode.

Congress could also take action after the November elections, but industry lobbyists worry that waiting until close to the yearend deadline would come at a cost. That's because banks will have to notify customers that their unlimited deposit insurance is about to expire, which will likely lead to more withdrawals.

"Pushing this up against a deadline would not be our choice," said James Ballentine, a lobbyist with the American Bankers Association.

At Thursday's Senate Banking Committee hearing, Sen. Bob Corker, R-Tenn., who supported an extension of the transaction account guarantee program in 2010, expressed reluctance to do so again.

"A lot of the community banks are around here lobbying us about the transaction account guarantee. I think it expires at year end. I'm reticent to continue things like that," Corker said during the hearing.

The Tennessee Republican went on to express concern about what he described as a "tremendous flight" of funds into transaction accounts because they are fully insured.

The program's extension does have key supporters in Congress. Senate Banking Committee Chairman Tim Johnson, D-S.D., was a sponsor of the provision to extend TAG in 2010.

His spokesman issued a statement Thursday that stated, "Senator Johnson continues to work with his colleagues to find consensus on an issue that is important to community banks."

Democratic Sens. Sherrod Brown and Robert Menendez, both members of the Banking Committee, and Rep. Barney Frank, the top Democrat on the House Financial Services Committee, have all come out in favor of an extension.

The lobbying push by industry trade groups is complicated by the fact that support for the proposal is not unanimous within the banking industry. Fine, of the ICBA, said that 80% of community banks support an extension of the program.

Both the ABA and ICBA are reluctant to make predictions about their chances of success.

"I think that we have a reasonable chance of getting Congress to extend the TAG program," Fine said.

Ballentine argued that the benefits of the program accrue to banks' customers, including small businesses and municipalities.

"We hope that it's something that can get done," he said. "We realize the legislative calendar is closing down, but we're certainly making a run at it."

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