WASHINGTON — After staying largely silent on the issue, the American Bankers Association now supports extending the Transaction Account Guarantee Program for two years.
"The program … has been beneficial to banks and their business customers," said ABA chief executive Frank Keating in "Washington Perspectives", the group's weekly newsletter updating bankers about federal banking policy.
The program, first launched in 2008, has provided unlimited Federal Deposit Insurance Corp. coverage on noninterest bearing checking deposits in transaction accounts, but it is set to expire at yearend. (An extension would require legislation.)
Unlike other policy issues that tend to unite banks, there has been little consensus on what to do about TAG. Community banks, led by the Independent Community Bankers of America, mostly say ending the coverage will cause business customers and other large depositors to take money to "too-big-to-fail" banks. The ICBA supports extending the program for another five years.
But larger banks in particular have grown tired of the cost to manage the huge deposit influx the program triggered, including higher FDIC premiums and the need to invest the funding, and say the liquidity threats that faced the system during the crisis no longer exist. Among those advocating letting the program expire is Keating's predecessor at the ABA, Ed Yingling.
The ABA's membership includes large and small banks, which could explain why it stayed silent on the issue until now. Keating indicated the decision was not an easy one.
"Advocating for its extension was a decision that required careful analysis," he wrote.
Keating said ABA officers had queried "bankers from Florida to Oregon and everywhere in between" about their position on an extension.
"While bankers' views varied — often according to whether their state was still suffering from the recession — a consensus emerged," he said. "It became clear that all would ultimately benefit from an extension, since it would reduce uncertainty for businesses, promote economic stability and facilitate the recovery."
He added one factor supporting an extension is a recent determination by the FDIC losses associated with the program, including if it were extended, would not impede the agency's efforts in any material way to rebuild deposit-insurance reserves drained by the crisis. The FDIC has not taken a position on whether the program should be extended.
However, Keating noted that a congressional move to extend TAG should not in any way be accompanied by expanding business loan limits for credit unions, as some have proposed. "A quid-pro-quo is out of the question, as ABA's board made clear with its vote," he wrote. "We'll make this clear with Congress, too, as we begin to [seek] sponsors and support for a TAG bill."