Recently the FDIC was given the go ahead to extend its Transaction Account Guarantee (TAG) program. The program, which began in December 2008, allows banks to offer unlimited account guarantees for certain kinds of non-interest-bearing accounts for both consumers and businesses. The program has been extended several times and during those extensions, banks were permitted to “opt out” of the program if they chose. The second “opt-out period” is underway right now.
The main reason a bank might elect to opt out of the program is the premiums for giving the unlimited account guarantee are expensive for a large bank.
Some banks have elected to pass on the additional costs of the FDIC guarantee to the account holder, while others have elected to pay for the guarantee out of their own bank profits.
According to a recent FDIC estimate, approximately 65% of U.S. commercial banks have elected to remain in the program with the 35% opting out.
Some of the largest banks in the country (and also some of the most unstable) have elected to opt-out because of cost. The FDIC doesn’t provide a percentage of total account balances in the U.S. that aren’t included in the TAG program, but it is fair to guess it is a huge percentage of total assets in all FDIC insured banks.
Why would a business owner, officer or director of a company, or CFO who has fiduciary responsibilities elect not to put their non-interest bearing accounts in a bank that doesn’t offer unlimited deposit guarantees?
Here are some good reasons why you need to examine your bank depository relationship and consider moving your deposits to a bank that does provide unlimited guarantees:
Your fiduciary responsibilities are easier to carry out when you know your cash deposits are fully protected, not just up to the current $250,000 limit.
Small businesses that have done well could easily have in excess of $250,000 in non-interest bearing deposits and would no longer have to worry about losing their cash in the event of a bank failure if they kept their money in a bank that offers unlimited deposit guarantees.
The program was recently extended from June 30, 2010 to December 31, 2010, but the FDIC board of governors can make the decision to extend it during an option period to December 31, 2011. In my opinion, that is likely to happen. There are also provisions whereby the program may be extended to as long as the end of 2014.
You can determine if your bank has opted out of the program several ways. First, banks are required to post a visible sign in their lobby indicating they have opted out of the program; secondly, banks that are participating may post a visible sign in their lobbies saying they have elected to participate.
Bank websites have not been fully updated regarding this issue so some websites may not address the issue and some may indicate the TAG program expires on June 30, 2010.
Yesterday I walked into a local branch lobby of a bank that elected to “opt-out” of the TAG program when it has the first chance to opt-out. I looked for the required sign indicating that the bank had opted out. I could find none. I asked the branch manager about the sign and he had no idea what I was talking about. He didn’t know any details of the TAG program at all. So it is not a good idea to take the word of a local lobby manager of a large bank. They really aren’t being kept in the loop.
The only way to check your bank and get a good feeling about whether they are in or out of the deposit guarantee program is to check the first and second opt out period list kept by the FDIC. Banks that have or are opting out of the program are on a spreadsheet. If your bank is not listed on the web-site, make contact with an officer, director, or someone in senior management to determine if your deposits have unlimited FDIC guarantees.
EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.