Federal program helping smaller banks is set to expire

07/02/2012 5:00 AM

07/02/2012 6:17 PM

A federal program begun on the heels of the 2008 financial crisis and aimed at preserving smaller banks from losing large, commercial transaction accounts is set to expire.

And that has various banking groups lobbying Congress to extend the Transaction Account Guarantee program, which was designed to temporarily insure large commercial and institutional transaction accounts that have much more money than is covered by typical deposit insurance, a $250,000-per-account limit.

Groups ranging from the Independent Community Bankers of America to the Conference of State Bank Supervisors and an informal group of bankers’ banks — including Wichita-based Bankers’ Bank of Kansas — are urging congressional leaders to extend the program for five years.

It’s set to end Dec. 31.

“The fear is with TAG set to expire, we’re going to see massive amounts of deposits leave the community banks and go right to the too-big-to-fail banks,” said Shawn Mitchell, president and CEO of the Community Bankers Association of Kansas, an ICBA member. “We’re just afraid if they let it expire it’s just going to really affect our community banks.”

Bruce Schriefer, president and CEO of Banker’s Bank of Kansas, said it’s a real concern for some of the 250 small banks for which Bankers’ Bank of Kansas provides services. With no financial burden to taxpayers — because banks pay for TAG through a special premium they pay to the FDIC — it makes sense to extend the program and prevent a run on large deposit accounts at small banks.

“Why pull the rug out of something that seems to be working?” Schriefer said.

Schriefer also said he has heard instances of regulators asking banks what their liquidity plans are if they lose deposits suddenly because of the expiration of the TAG program.

The TAG program started out as a voluntary program; banks applied to participate.

One of those banks was Intrust, which at the time applied because at the onset of the 2008 financial crisis “banks were concerned about runs and liquidity issues and most banks opted in,” said Lyndon Wells, Intrust’s public affairs division director.

But by May 2010, Intrust believed that it was no longer an issue and planned to withdraw its voluntary participation in TAG.

“The reason we opted out is we just didn’t feel it was necessary any longer,” Wells said. “We’d been through the worst of the crisis.”

And then, the Dodd-Frank financial reform bill was enacted into law. Provisions of the law required all banks to participate in TAG.

“We believe there needs to be a sunset of the program at some point,” Wells said. “I think our reluctance is the whole concept of an unlimited guarantee of forever.”

Schriefer and Mitchell said they know that there is not universal support among community banks to extend TAG. But they think there are more that do support it than don’t.

Tom Page, CEO of Emprise Bank, said some banks don’t support the extension because they don’t want to continue to pay high FDIC premiums. Others aren’t supportive because they don’t have many, if any, transaction accounts with more than $250,000.

“I would say it’s not a burning issue for us, but all things considered we would probably rather see it extended than eliminated,” said Page, whose bank also was a voluntary participant in TAG.

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