FDIC Extends Guarantee On Transaction Account Balances

June 22, 2010 – The FDIC Board of Directors extended the Transaction Account Guarantee  (TAG) program six months beyond its original expiration to December 31, 2010.   In addition, the Board approved for an additional extension, if deemed necessary, to December 31, 2011.

The TAG program was initiated in October 2008 as part of the Temporary Liquidity Guarantee Program (TLGP) in response to disruptions in the credit market.  The intent of the program was to increase liquidity to financial institutions in order to bolster lending in a weak economy.

FDIC Chairman Sheila Bair said “While I believe that the TAG program has proven to be critical to ensuring our financial system’s stability, it was established as a temporary program. Ultimately, it should be up to Congress to determine our insurance limits. Adoption of this final rule allows the opportunity for Congress to conclude its current deliberations relative to this program.”

The TAG program provides full insurance guarantee coverage on deposits in noninterest-bearing transaction accounts.  At the end of last year, TAG guaranteed a total of $834 billion of deposits and collected $639 million in fees under the program.  Smaller community banks had lobbied heavily for an extension of TAG, believing that without being able to guarantee corporate checking and NOW accounts, they would be at a competitive disadvantage to larger banks that were deemed “too large to fail”.

Many of the “temporary” increases in deposit guarantees instituted during the financial crisis are now becoming permanent, as was recently seen with the permanent increase on FDIC deposit insurance to $250,000.

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