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TAG shot down in Senate

By Claes Bell, CFA · Bankrate.com
Thursday, December 13, 2012
Posted: 5 pm ET

It's not a great day for community banks.

The Transactional Account Guarantee, or TAG, program extension, which would have provided unlimited insurance from the Federal Deposit Insurance Corp. to business' noninterest checking accounts for another two years, is dead -- for now.

From Joe Adler at American Banker:

Majority Leader Harry Reid had attempted a vote this week on his bill extending the program for two years. But Republicans filed a point of order with the bill, arguing that a finding by the Congressional Budget Office about TAG's potential costs suggests the legislation would violate constraints on spending for financial services legislation.

Although 50 senators voted to waive the budget rules, a waiver required 60 votes.

The move essentially blocked Reid's bill from consideration during the current lame-duck session.

Supporters of extending the program also have targeted year-end legislative packages to simply insert language keeping TAG alive. But those efforts appeared less likely Thursday as Republicans argued that TAG is a subsidy that banks no longer need.

As I wrote earlier this week, community banks fear that businesses will withdraw funds that will no longer be FDIC-insured as of Jan. 1. Just as with consumer accounts, business bank accounts are only insured up to a limit of $250,000. Problem is, they often exceed that number routinely to make payroll and take care of other day-to-day business.

"Although we're disappointed with today's outcome, America's banks -- with $1.6 trillion in capital -- are prepared. 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," American Bankers Association CEO and president Frank Keating said in a statement.

Unfortunately for community banks, the bill was always kind of a long shot. Even if it had passed the Senate, it was unlikely to get a vote in House, as it was opposed by GOP leaders in that chamber. Still, all this opposition is a little surprising considering how often legislators of both parties pay lip service to community banks on Capitol Hill.

What do you think? Do businesses need unlimited FDIC insurance?

Follow me on Twitter: @ClaesBell

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