Banks say "yes." Credit unions say "no."
That sums up the current debate over whether Congress should extend a program that insures large bank deposits. The Transaction Account Guarantee program, known as TAG, was installed four years ago as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It insures an unlimited amount of money in noninterest-bearing transaction accounts.
Many municipalities, hospitals, small businesses and other entities use noninterest-bearing transaction accounts to meet payroll and operational expenses. Approximately $1.4 trillion is deposited in these accounts, according to the Independent Community Bankers of America, a banking industry group in Washington, D.C.
TAG is now set to expire Dec. 31.
Banks want TAG extended. But this week the trade group Credit Union National Association, or CUNA, sent a letter to Sens. Harry Reid, D-Nev., and Mitch McConnell, R-Ky., arguing that TAG is risky and no longer necessary. It also argues that TAG hasn't been proven to enhance bank business lending.
The CUNA letter suggested that unlimited deposit insurance coverage for noninterest-bearing transactional accounts could encourage "bank carelessness in maintaining adequate capital and making prudent lending decisions."
TAG was pitched as a way to protect smaller banks, but CUNA said it's actually become a perk for industry giants. As of March 31, CUNA said, only 3.4 percent of TAG-insured deposits that exceeded the existing $250,000 Federal Deposit Insurance Corp. limit were held by banks with less than $1 billion in assets.
Instead of extending TAG, CUNA wants Congress to authorize more business lending by credit unions.
"The TAG program may provide security for very large depositors, but the banks are not lending the money," CUNA said in the letter. "Credit unions see demand for small business lending in their markets and the most experienced credit unions face a statutory cap on how much they can help."
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