A bill that proposed to extend the US Transactional Account Guarantee (TAG) programme for a further two years has been defeated in a procedural vote in the Senate.
Since the financial crisis broke in 2008, the TAG programme has guaranteed all non-interest deposit accounts at US banks and credit unions, above the Federal Deposit Insurance Corporation’s (FDIC) normal US$250,000 limit for insurance on those accounts.
Smaller banks were particularly keen for the programme to be extended beyond its 31 December 2102 expiry date, arguing that allowing the TAG programme to expire would lead US companies to withdraw funds from bank accounts and invest elsewhere. Many community banks are still feeling the impact of the crisis due to a slow and modest US economic recovery.
“We’re disappointed that the Senate failed to vote on a temporary extension of the [TAG] programme,” said Frank Keating, president and chief executive officer (CEO) of the American Bankers Association (ABA) in a statement. “Millions of small businesses and municipal depositors would have valued its continuation during this period of economic recovery.”
“The elimination of the TAG programme has real consequences for those that take counterparty risk seriously, said Bob Stark, vice-president strategy for treasury management solutions group Kyriba. “With unlimited FDIC Insurance on bank deposits, there was no risk. As of 1 January 2013, corporate treasurers will be forced to reconsider the amount of risk they are willing to accept.
“Some analyses will undoubtedly determine that there is less risk to moving funds to alternative investments, including money market funds (MMFs). For those that move away from bank funds, it will heighten the need for better visibility in cash management and forecasting, so that treasurers can make more accurate decisions about the amount and timing of their investments.”
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