FDIC extends bank TAG program

A program launched on the heels of the banking crisis and designed to prevent large commercial clients from leaving community banks has been extended through the end of the year.

The Federal Deposit Insurance Corp. board of directors Tuesday approved the extension of the Transaction Account Guarantee program from June 30 to Dec. 31.

"It's necessary to extend the TAG program because the lingering effects of the financial crisis that emerged in 2008 in large, systematically important banks have now spread to institutions of all sizes, particularly in regions suffering from ongoing economic weakness," said FDIC Chairman Sheila Bair in a statement. "Allowing the TAG program to expire in this environment could cause a number of community banks — already under stress — to experience deposit withdrawals from large transaction accounts and would risk needless liquidity failures."

The TAG program applies to large commercial and institutional checking accounts that have much more money than is covered by typical deposit insurance, which has a $250,000 per account limit.

"I think it's positive," said Jim Faith, Wichita president of Sunflower Bank. "I think it will help continue to stabilize the system. They did it to increase people's confidence in the banking system, and I believe it's been effective."

The FDIC board's action Tuesday would also allow it to further extend the program until the end of 2011 if it thinks economic conditions warrant.

The program is available to all banks, but those participating in TAG have to agree to pay an additional premium to the FDIC. The additional premium ranges between 10 cents to 25 cents for every $100 of deposits. Banks deemed a higher risk by the FDIC pay the upper limit of the premium.

Intrust Bank is one of the Wichita banks participating in TAG.

"I think for us the likelihood is we'll continue to participate," said Lyndon Wells, Intrust executive vice president.

The FDIC said about 80 percent of the industry is participating in TAG. At the end of 2009 those banks had $266 billion in deposits not covered by traditional FDIC insurance but covered by the TAG program.

FDIC spokesman David Barr said banks participating in TAG but wanting to opt out must do so by July 1. Otherwise, they could be participating in the program for as many as 18 more months, he said.