Senate Showdown Nears Over TAG Extension
Several important bills, including one protecting information banks share with the CFPB and another nixing the requirement that banks have a physical sign disclosing ATM fees, could be poised for passage in the Senate during the lame duck session. But the fate of others, including an extension of TAG, is less clear.December 3
WASHINGTON — A proposed extension of a federal guarantee for certain transaction accounts has become a rapidly moving target on Capitol Hill, as opponents across multiple business sectors have so far failed to stop its momentum in the Senate.
The Senate is expected to vote on a bill as early as next week that would extend the Transaction Account Guarantee program. Senate Majority Leader Harry Reid filed a cloture motion on the bill on Thursday, likely setting up a fierce fight next week on the fate of the crisis-era program.
Although the bill has traction, it faces a series of obstacles, particularly in the House, where opposition is more intense.
"The ball has been advanced somewhat on this issue. Obviously, having Majority Leader Reid serving as the quarterback moves the issue. But in the Senate, it's only at the 50-yard line and then the House is its own ballgame," said James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association, which supports an extension.
The legislation pits community banks, which are adamantly pushing for a TAG extension, against a diverse array of opponents, including some megabanks, a leading credit union trade association, and money-market mutual funds.
Although industry lobbyists are optimistic about its chances in the Senate, the situation is fluid. Just a few days ago it looked like the bill might not even get a vote in the Senate after some groups and a key GOP lawmaker announced their opposition to it.
"We sure hope it won't continue, this holdover from a really bad period of time in our country," Sen. Bob Corker, R-Tenn. told reporters Thursday. "It just continues to promote undue government involvement and we know there are a lot of folks who have called in support of it, but we just think it's a program whose time has come to end and we hope that it's ended."
But on Thursday, sources said other Republicans are supportive of the bill, which was introduced by Reid last week, and it may have enough support to pass. Industry analysts said it is hard to tell exactly where the votes are because the issue does not break down along party lines.
"It's not so much a partisan issue as it is a geographic issue," said Brandon Barford, a vice president at ACG Analytics. "It pits lawmakers from more rural districts or states against those with large banks in their backyards. This dynamic makes the bill more difficult to bring up for consideration."
A key factor, according to sources, is whether members are able to attach other provisions to Reid's bill, which could slow it down.
Bankers fear that the measure might be successfully combined with an increase in business lending limits for credit unions, which bankers fiercely oppose.
Credit unions see a joint TAG-small business lending bill as their best option.
"We do not think we have 60 hard votes today for a standalone bill. We do feel … that [senators] are most comfortable supporting a package with something in it for banks and something in it for credit unions," said John Magill, executive vice president of government affairs for Credit Union National Association. "We're confident that would probably fly through the Senate."
Even if the TAG bill triumphs as a standalone measure in the Senate, however, its chances in the GOP-led House are doubtful. Conservative lawmakers in that chamber have expressed clearer opposition to further assistance to banks large or small.
Some also warn that since TAG, which the Federal Deposit Insurance Corp. created in 2008 to respond to liquidity concerns, was extended to the end of this year by the Dodd-Frank Act, a floor debate on extending the program could open the door to further financial reform revisions.
"Many in the House consider TAG a bailout, which means extension faces an uphill climb," said Scott Talbott, senior vice president at the Financial Services Roundtable, which opposes extending TAG.
The biggest supporters of extending the program still say the most likely scenario in their favor is Congress renewing TAG by inserting language as part of a broader, end-of-the-year legislative package related to tax or budget reform or other issues. But it remains to be seen whether the polarized Congress can pass anything before the end of the year.
"If it comes up for a vote" in the Senate, "it has very good odds of passage. But it has to be part of a larger package to get through the whole" Congress, said Paul Merski, chief economist and executive vice president of congressional relations for the Independent Community Bankers of America, a staunch supporter of the deposit insurance program.
But behind and outside the halls of Congress, business sectors opposing a TAG extension — including credit unions that do not want banks to be the only industry getting its legislative request — have upped their efforts since Reid introduced his bill Nov. 26.
"The money market funds have made it known to some very influential members that they want this program to expire at the end of the year," Ballentine said. "They have done the work that they can do to try to prevent the program from being extended."
Three days after Reid floated his bill, Roundtable chief executive Tim Pawlenty sent a letter to lawmakers saying that an extension "may create the misperception of instability" in the banking industry.
On Monday, the Credit Union National Association sent a letter saying TAG was "no longer necessary" in an apparent response to the pushback credit unions felt over their business lending cap. (The other leading credit union group, the National Association of Federal Credit Unions, while supporting a combined package, has not expressed specific opposition to TAG.)
Meanwhile, money-market entities, which stand to gain from TAG's end, argue that continuing the program would continue moral hazard.
"In times of financial stress, investors will always seek safe assets, such as a fully guaranteed bank account," Rachel McTague, a spokeswoman for the Investment Company Institute, said in a statement emailed to American Banker. "Extending TAG could lead to destabilizing flows of assets from securities markets to the banking system and could put taxpayers on the hook to back up its unlimited insurance."
Joshua Siegel, managing principal of StoneCastle Partners LLC, said each opponent of extending the program "has an entirely different reason for giving their answer.
"The credit unions' rejection is more for spite. The money center banks are against it because they think they don't really need it," Siegel said. "If you don't have unanimous support even from the banks, it's very hard to imagine enough political will to open up one piece of Dodd-Frank and nothing else."
Others said the involvement of larger institutions — which have struggled to gain political support in the wake of unprecedented financial bailouts — could actually aid TAG supporters.
"The big bank opposition could actually help, because if the big banks don't like it and little banks do like it, that plays well on Capitol Hill," said Jaret Seiberg, a managing director at Guggenheim Partners. "Our view still holds that if there's a big package of end-of-year bills, a TAG extension has a good chance of getting included. On its own, there's next to no chance of enactment."
Merski said a split in the banking industry over whether to extend the program has been greatly exaggerated.
"It's split in that 7,000 community banks nationwide want it and a handful of the largest megabanks don't," he said.