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West Virginia Rep. Shelley Moore Capito has asked the Federal Deposit Insurance Corp. to provide Congress with a detailed analysis on the performance of the Transaction Account Guarantee program in order help lawmakers decide to whether or not to extend the four-year-old program when it expires Dec. 31.
June 7 -
More than 30 state trade associations have joined the Independent Community Bankers of America in urging Congress to extend the Transaction Account Guarantee program, which offers banks unlimited deposit insurance on transaction accounts.
June 5
The acting chairman of the Federal Deposit Insurance Corp. said it is "difficult at this time to anticipate the consequences" of the possible expiration of the Transaction Account Guarantee program at the end of the year because of the uncertain economic climate.
In a letter to Congress dated June 29, Martin Gruenberg said that the TAG program has "been a source of stability to both banks and their business customers in the wake of the financial crisis and economic downturn, but is just one of many factors that have led to increased stability and liquidity at U.S. banks."
The TAG program, initially created in 2008, allows banks to offer customers unlimited deposit insurance on noninterest-bearing transaction accounts. The program is set to expire at the end of this year, but many community bankers are lobbying Congress to extend it because they are concerned that many business customers will move their accounts to larger banks if it does expire.
Gruenberg was responding to a request from Rep. Shelley Moore Capito, R-W.Va., who had asked for an analysis on the performance of the program. Though the FDIC administers the program, it has largely stayed out of the debate on whether or not to extend the program.
Gruenberg did not issue an opinion, though he did note that the added deposit insurance coverage has raised the cost of bank failures. He estimated that the cost of bank failures rose by 3%, or $2.2 billion, in the first two years and an additional $270 million over the last five quarters since the Dodd-Frank Act extended its coverage.
At March 31, there were roughly $1.3 trillion in balances in noninterest-bearing transaction accounts that exceeded the $250,000 insurance coverage limit. These deposits have increased by more than 50% from Dec. 31, 2010 to March 31, he wrote.
Gruenberg noted that much of the growth in temporarily insured deposits happened at the 10 largest FDIC-insured institutions. These institutions hold almost 52% of total assets in the industry and accounted for 70% of all temporarily insured deposits at March 31.
However, Gruenberg also warned in his letter that it was difficult to know how much of the growth in these deposits could be attributed to the temporary insurance or were the result of other factors, such as the current low interest rate environment.
