TAG! You're Insured... for $1.4 trillion
Was it even possible to keep up with all of the acronyms introduced during the financial crisis in the name of stability? Well, if you're a bank investor, one in particular ought to be on your radar right now: the Transaction Account Guarantee (TAG) program.
TAG insured all non-interest-bearing transaction accounts with balances above $250,000 and did so with no separate assessment by the FDIC. This essentially put taxpayers on the hook for around $1.4 trillion of deposits for small businesses, municipalities, and I suppose some very wealthy folks. The program was originally slated to end in 2010, but was extended two years so that it's now ready to sunset… next month.
Harry Reid has introduced a bill that would extend TAG for another two years amidst cries that pulling it would clobber small banks. Which doesn't seem totally unreasonable -- after all, if you're a business with a large transaction account, you can feel A-OK keeping that at pretty much any bank as long as you've got an unlimited guarantee from Uncle Sam. Pull that guarantee and maybe that business thinks twice about where it's keeping its cash.
There have been some arguments that this is worse for big banks than small -- ie that big banks benefit more from TAG -- but I'd have to bet that they'd see an influx of transaction account deposits if the guarantee disappears. Citigroup (NYSE: C) may still not be the picture of stability, but would you rather have your now-uninsured account at The Bank of Jim (completely fictional) or Wells Fargo (NYSE: WFC) or US Bancorp (NYSE: USB)?
No matter what the case though, the pushback against TAG ending shouldn't be surprising at all. Banks pushing back against tighter regulations even as they push for continued backing from the government? Sure, why not?