With TAG Near Death, Finger-Pointing Begins

WASHINGTON — An attempt by the Senate's top member to extend full insurance for non-interest-bearing checking deposits went up in smoke Thursday, putting community bankers back to square one in trying to save the Transaction Account Guarantee.

The Senate's procedural vote defeating Majority Leader Harry Reid's proposed two-year extension does not preclude another eleventh-hour gambit by TAG supporters. But it has dealt it a significant — and likely mortal — blow that is already fueling a round of finger-pointing as to what went wrong.

Some blame a larger battle between the political parties over filibuster reform as well as a related push by credit unions to marry TAG with their business lending bill. Others said the Federal Deposit Insurance Corp.'s neutrality over extending a program the agency administers was a crucial obstacle.

"With this setback, I don't see many other avenues for legislation to extend the program," said James Ballentine, executive vice president for congressional relations and political affairs for the American Bankers Association.

The bill — already opposed by conservatives because it preserves crisis-era guarantees they see as now unnecessary — always faced long odds in the narrow window of the lame-duck session.

But observers pointed to other factors that stood in its way.

For one, the battle over potential filibuster reform overshadowed much of the debate over TAG. Republicans feared that Democrats would use opposition to TAG as a pretext to push for changes that would make it harder for the minority party to filibuster legislation.

"The debate over the filibuster rule created a negative cloud over the bill," said Scott Talbott, senior vice president of public policy at the Financial Services Roundtable, which opposed the extension.

Other sources pinpointed the FDIC's intention not to get involved in the debate. Although the agency usually stays neutral in legislative battles dealing with deposit insurance limits, backers of extending the program said the agency's absence ultimately hurt the bill's chances.

"Straight out of the gate, if the FDIC wanted this program to continue they would have made those views known to members of Congress," said an industry source who spoke on the condition of anonymity. "Would that have made it a 'must-do bill'? Maybe not. But it would have given members an indication that this is a program worth continuing. It really starts with the FDIC."

In a statement, FDIC chief spokesman Andrew Gray said the agency's position should not have come as a surprise. (While TAG was originally created in 2008 by the FDIC to quell liquidity scares stemming from the crisis, the program was continued to the end of this year under the 2010 financial reform law.)

"TAG was extended by statute through the Dodd-Frank Act, and the FDIC has traditionally deferred to Congress in deciding appropriate deposit insurance limits," Gray said.

To be sure, the strongest advocates of extending the program say they are not backing down. They say their original strategy — involving trying to insert language extending TAG in a broad bipartisan legislative package instead of moving an individual bill — is still in play.

"The procedural vote was a disappointment, but as an old baseball player I firmly believe in the saying, 'It ain't over till it's over'," said Camden Fine, the chief executive of the Independent Community Bankers of America. "We lost a procedural vote on a budget objection. We did not lose a vote on the merits of the bill itself. That game is still on."

But Fine's counterpart at the ABA, Frank Keating, was less hopeful, saying in a statement that while he would have preferred a different result, banks are "prepared" for the program's wind-down.

"Banks already have been communicating about the possible expiration of TAG and will work with their business customers to demonstrate the safety of their deposits," Keating said.

As bankers were expressing disappointment, credit union advocates were claiming credit for killing the bill.

"Credit unions, their state associations across the country and" the Credit Union National Association "aggressively opposed this … bailout program," CUNA CEO Bill Cheney said in a statement.

They may be right.

Credit unions had sought to attach a bill doubling the small business lending cap to 25% to the TAG legislation — a move adamantly opposed by bankers.

To stop such a move from happening on the Senate floor, Reid took a procedural action earlier this week that prevented lawmakers from offering amendments to the bill.

As a result, Republican lawmakers complained that they were not able to offer amendments that they said would have addressed a key problem with the bill: an estimate that it would cost the government money. The Congressional Budget Office said Monday that the bill could cost $110 million over the next 10 years because the FDIC was not charging sufficient premiums to cover a substantial loss.

Sen. Patrick Toomey, R-Pa., used the CBO's score to raise a point of order with the bill, noting that it violated budget rules that said any measure estimated to cost money must be paid for in some other fashion. Democrats tried to waive the point of order — a move that requires 60 votes — but were able to muster only 50. Forty-two senators voted against waiving the motion, effectively killing the bill as a standalone measure.

Prior to that vote, Sen. Bob Corker, R-Tenn., said Democrats could have won additional support if lawmakers could have added amendments to the bill.

"It would have allowed the FDIC to charge enough money … so that we wouldn't have had to have the point of order that was raised," Corker said.

Republicans argued that Reid's decision not to allow amendments proved why filibuster reform was a bad idea. Democrats have said the threat of filibusters prevents meaningful action by the Senate, but Republicans counter it forces measures to enjoy bipartisan support.

"The heavy-handed way the Democratic Majority is handling this bill is a prime example of the fact that we don't have a rules problem around here; we have an attitude problem around here," said Senate Minority Leader Mitch McConnell on Wednesday.

But some supporters of the bill said that Republicans' associating TAG with the filibuster debate was just a red herring.

"That's a convenient excuse. Republicans wanted to have it both ways," said one Democratic congressional aide. "They wanted to be able to say to community banks that, 'We were ready to stand with you', but they're trying to use the process as a way to scapegoat their vote. If they were really with the community banks, they could have helped push this over the finish line."

But Corker accused Democrats of trying to do the same thing.

"The only reason we are voting on this amendment — the only reason — is that my friends on the other side of the aisle know that Dodd-Frank has hurt community bankers around this country, and they're trying to throw a bone out to community bankers across the country, and they're trying to get us to vote against it," Corker said.