By: Julie Story
Lawmakers repeatedly affirm that keeping small businesses solvent, increasing hiring and loosening entrepreneurs' access to credit are goals that must be achieved to get the economy back on track. However, as the expiration date for the Transaction Account Guarantee program nears, few lawmakers have stepped up to lobby for its renewal. If TAG coverage is allowed to expire, it may put small businesses in a more precarious position than what they already face.
According to the Federal Deposit Insurance Corp. Second Quarter Banking Profile, $1.4 trillion in bank deposits are protected by the federal agency's full coverage of noninterest-bearing transaction accounts. Further, $212 billion in deposits that reside with banks with less than $15 billion in assets are insured by TAG coverage, an increase of $10 billion from the previous quarter.
If TAG insurance coverage is allowed to lapse on December 31, 2012, these funds will become uninsured overnight and put small businesses in danger, the Independent Community Bankers Association warns. Currently, community banks with less than $15 billion in assets extend roughly 60 percent of small business banking products and rely up TAG deposit liquidity to support local lending initiatives, ICBA notes. Further, the group explains that extending the insurance policy would prevent deposits from being concentrated in a small number of megabanks.
"Failing to extend TAG coverage will create yet another 'fiscal cliff' for thousands of businesses and municipalities that use these TAG accounts," said Paul Merski, ICBA executive vice president and chief economist. "ICBA is urging Congress to promptly enact a temporary extension of this successful bank-funded FDIC insurance until there is greater stability in the global financial sector and interest rates become more normalized."
Economists and lawmakers have depended heavily on small businesses - which employ a large percentage of America's workforce - to help bring the U.S. out of its economic slump. However, if they are continually barred access to credit and now face hurdles related to the expiration of TAG coverage, it may be unrealistic to expect a great deal from the nation's small businesses. If TAG is extended, however, it may provide another layer of protection to one of the country's most valuable assets.