On June 8, 2010 I wrote about the FDIC Transaction Account Guarantee (TAG) program.
There have been some wrestling in congress during the last week that could affect small and mid-sized businesses that carry large non-interest bearing deposits in
First both houses of congress have agreed to make the temporary $250,000 FDIC insurance cap permanent. They also made this change retroactive to January 1, 2008 to cover some accounts that in banks that failed before congress raised the limit from $100,000 to $250,000.
Where the two houses of congress are still at odds are related to the unlimited FDIC Transaction Account Guarantee Program (TAG) that some banks are participating in and some aren’t.
Under the current rules, the TAG program has allowed banks to “opt-out” twice since it was created. If a bank doesn’t want to participate in the unlimited account guarantee, they must notify the FDIC of their decision to not provide the unlimited coverage on deposits by the end of this month. Most banks that have decided to opt-out have already done so.
You might ask the question why a bank would opt-out. The reason is the extra cost of participating in the TAG program is expensive, especially for the largest banks in the country.
House of Representative Financial Services Committee Chairman Barney Frank (D-Mass.) is leading a push to make the TAG program permanent as well as cover all banks. The Senate conferees want to extend the program through December 31, 2012 and allow banks to opt-out as they currently are able to do.
In nearly all states, business checking accounts are non-interest bearing accounts. The TAG program only covers non-interest bearing accounts and some low interest consumer accounts.
Despite the appearances otherwise, banks as a whole are very low profit margin businesses. Many of them are passing on the extra cost of the TAG program fees to business customers in the form of pass-through costs on deposits. This is much like some transportation companies pass through a fuel surcharge to their customers.
Any businesses that carry large cash deposits should at the very least continue to keep up with this issue. After the house and senate conference committees finish work on the legislation the result could matter significantly, especially since the FDIC has over 750 banks on the troubled bank watch list.
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