With Thanksgiving behind us and Christmas fast approaching, the lame duck session of Congress is heating up. Most of the media attention is appropriately being focused on the so-called “fiscal cliff.”
For the financial services industry, there looms another issue of nearly equal importance. That issue is the unified effort of the Independent Community Bankers of America (ICBA) and the American Bankers Association (ABA) to move legislation that would extend the Transaction Account Guarantee (TAG) program of the Federal Deposit Insurance Corp. The FDIC board had unilaterally developed and initiated TAG in response to the financial crisis in the fall of 2008, to assure holders of noninterest-bearing transaction accounts (checking accounts) that their funds were guaranteed. This assurance was to mitigate potential runs on banks by customers seeking to close their accounts. The Dodd-Frank Act, passed mid-2010, extended that coverage through Dec. 31, 2012.
Now the industry, led by ICBA and ABA, is working to get the TAG extended at least two years. However two problems have surfaced that could foil these attempts. First, the banking industry officially lost its united front when the Financial Services Roundtable — made up exclusively of the 100 largest financial service companies in the United States — recently came out in opposition to the TAG extension. So much for industry unity.
Second, and more importantly, the credit union industry is in all-out pursuit to attach to the TAG extension bill its legislation to increase member business lending limitations. This move is a poison pill for the banking industry. Permitting these two bills to be merged and/or amended into a larger bill will cause the banking industry to join together to defeat the very bill the industry had sought to pass.
Deposits are the bloodstream of the banking system, particularly for community banks. If the general public believes there is risk in those deposits at community banks, many will move to the banks thought to be “too big to fail.” Hence the opposition by the Financial Services Roundtable. The next few weeks will be interesting!