Add Fitch Ratings to the growing chorus of banking industry voices expressing concern about the expiration of a bailout-era deposit protection program and its potential impact on small banks.
Fitch said this week that the pending expiration of the Transaction Account Guarantee program "could have a negative impact" on deposit bases at small banks, particularly those that are already struggling. It suggested that some banks might have little choice but to sell themselves and that others could ultimately fail.
"Any large movements of high-value account balances out of smaller and more
financially vulnerable banks could drive a weakening of liquidity and a further erosion of depositor confidence at these institutions," Fitch wrote in a news release Tuesday. "This could drive more consolidation in the industry, although financially weak banks may not be attractive acquisition targets, except in government-assisted deals."
The TAG program offers unlimited deposit insurance on non-interest-bearing accounts with balances exceeding $250,000. It was established in late 2008 as a voluntary program, was made mandatory in 2010 and is scheduled to expire on Dec. 31 unless Congress takes action to extend it.
Many community bankers say the program has helped them attract large corporate deposits that might otherwise have gone to larger banks. They argue that if the program ends before the economy fully recovers, corporations and municipalities that now keep their deposits in small banks might shift them to those perceived to be too big to fail.
The Independent Community Bankers of America is pressing Congress to extend the program for another five years while the American Bankers Association is lobbying for a two-year extension.