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ICBA Chief Economist Speaks Out on Temporary FDIC TAG Extension Following Fed Announcement
Sept 14 - Following the Federal Reserve statement announcing new quantitative easing efforts to address a fragile economic recovery, Independent Community Bankers of America Chief Economist Paul Merski released this statement on the need to extend full FDIC insurance coverage of noninterest-bearing accounts, known as the Transaction Account Guarantee program.
“While the Federal Reserve continues to extend its monetary efforts to shore up our uncertain economic recovery, Congress must also temporarily extend the FDIC’s full coverage of noninterest-bearing transaction accounts. The Fed has pumped trillions of dollars of liquidity into the economy since the financial crisis, and Congress is rolling the dice if it does not promptly extend FDIC TAG insurance coverage. Nearly $1.4 trillion in TAG deposits would become abruptly uninsured overnight on Dec. 31. Allowing TAG insurance, which is fully paid for by banks, to expire would create unnecessary risks on small business depositors and commercial banks alike.
“Allowing TAG to expire would also immediately transform $1.4 trillion in risk-free deposits to a risk asset. It is extremely hard to imagine that this could be a good thing for our still-fragile economy. Expiring TAG coverage creates an additional ‘monetary cliff’ at the exact time the ‘fiscal cliff’ will be reached. Therefore, temporarily extending the TAG program is critical until the economy and financial system are fully recovered and interest rates are more normalized.
“While there continues to be so much uncertainty in our economy, temporarily extending TAG would eliminate one giant element of uncertainty facing the depositors of insured depository institutions that rely on TAG accounts, including small businesses, farmers, non-profits and municipalities.
“With the Federal Reserve yet again acknowledging the uncertain economic outlook and advancing additional actions to keep interest rates at exceptionally low levels, at least through 2015, a temporary extension of the TAG program is completely consistent with the Federal Reserve’s current monetary actions. Congress must extend TAG if it is serious about reducing uncertainty, promoting economic stability and fostering greater job growth.”
Additional FDIC TAG information can be found at www.icba.org.