By: Michelle Patana
Community banks have not scaled down their support for the extension of Transaction Account Guarantee insurance - or TAG - which is set to expire at the end of the year. While these local institutions have been met with opposition by lawmakers, they recently received some support from Senate Majority Leader Harry Reid, who recently unveiled a bill that would keep the measure in play for another two years.
TAG currently provides unlimited deposit insurance coverage to all non-interest bearing accounts, including checking accounts used by businesses. Community banks have argued that if the coverage is allowed to expire at year-end, thousands of business owners will lose key protection on their assets, and may move their funds elsewhere. This could significantly cripple community banks, which extend a sizable amount of small business banking products each year.
While Reid's new bill would extend the program for another two year, it does contain a key change to the program. Under the new legislation, the cost of TAG will not be included in the Federal Deposit Insurance Corp.'s budget, as it currently is. Instead, the FDIC would be required to estimate losses from the program separately, and collect fees to offset these losses, according to American Banker.
Chances for passage
As the bill was only recently introduced and Congress is currently discussing the impending fiscal cliff, it is unclear whether the bill will draw enough support from lawmakers to be approved. Some also argue that attaching the bill to another piece of legislation may improve its chances of passage rather than voting on it as a stand-alone bill.
Jaret Seiberg, a managing director at Guggenheim Partners, told American Banker that passing it as a stand-alone bill would be a "Herculean" task for anyone. He noted that attaching it to another high-profile, yet uncontroversial, bill related to taxes may help the legislation pass.
"What [Reid's bill] does is make us more bullish that you could get a TAG extension included in a yearend tax bill," Seiberg told American Banker. "It's hard to believe that Congress is going to allow the AMT fix to expire, so something has to get done on that front. The idea that you're going to sink measures that enjoy bipartisan support among voters just to make a point about a relatively uncontroversial deposit insurance extension strikes me as unlikely."