December 11, 2012 - STATEMENT OF ADMINISTRATION POLICY
The Administration supports Senate passage of S. 3637, which would temporarily extend the unlimited deposit insurance coverage for noninterest-bearing transaction accounts. The Transaction Account Guarantee (TAG) Program played an important role in maintaining financial stability and banking system liquidity for consumers and businesses during the financial crisis. While the Administration supports a temporary extension of the program, it remains committed to actively evaluating the use of this emergency measure created during extraordinary times and a responsible approach to winding down the program. The Administration looks forward to working with the Congress to move forward other measures that will support small businesses and accelerate the economic recovery.
December 11, 2012 - NTU urges Senators to oppose S. 3637, a bill to temporarily extend the Transaction Account Guarantee (TAG) program. Voting to continue this unnecessary program would perpetuate the failed bailout-prone policies of the past and force taxpayers to insure approximately $1.6 trillion of private savings.
Created in 2008 during the financial crisis, and extended under the Dodd-Frank banking law, TAG provides unlimited government deposit insurance above and beyond the standard FDIC cap of $250,000 for funds in accounts that do not earn interest. The program encourages individuals and corporations to store excess savings in interest-free bank accounts, rather than investing in vehicles that provide the market with essential capital to grow and innovate.
Extending TAG would continue to give wealthier individuals and businesses a taxpayer-backed insurance plan that distorts markets by hiding risk and removing essential competition in the banking industry. Rather than compelling taxpayers to underwrite this scheme and exposing them to potential liabilities, Congress should pursue legislation that will roll back costly regulatory burdens on our nation’s banks.
All roll call votes on S. 3637 will be included in our annual Rating of Congress. A “No” vote is considered the pro-taxpayer position.
12/11/12: As one of our millions of FreedomWorks members nationwide, I urge you to contact your senators and urge them to vote against S. 3637, the bill to extend the Transaction Account Guarantee (TAG) program. Introduced by Senator Harry Reid (D-NV), this bill would extend full loan guarantees to all bank accounts that do not earn interest.
The usual bank account insurance provided by the Federal Deposit Insurance Corporation (FDIC) is full coverage up to $250,000, but during the financial crisis the FDIC created the TAG program, eliminating the $250,000 cap for any deposit accounts that earned no interest.
Fully insuring these accounts is bad economic sense. It puts every taxpayer at risk for insuring the assets of the wealthiest account holders (after all, most people don’t have over $250,000 to just stick in a static account). Worse, in an economic environment that already punishes wealthy investors with high taxes, the TAG program provides a further incentive for them to hide their assets in safe, taxpayer-backed accounts rather than risking their money in economically productive investments.
As it stands, TAG is set to expire on January 1, 2013. Yet, under pressure from the banking industry, Congress is moving to extend this unnecessary program by another two years.
Investors who have the means to leave over $250,000 in a no-growth account have access to other means of protecting their assets, and do not need to be bailed out with taxpayer dollars. Congress should just let TAG expire as planned.
I urge you to call your senators and ask them to vote NO on S. 3637 or any amendment to extend the Transaction Account Guarantee program. We may count any vote on this bill as a KEY VOTE when calculating the FreedomWorks Economic Freedom Scorecard for 2012. The Economic Freedom Scorecard is used to determine eligibility for the FreedomFighter Award, which recognizes members of Congress with voting records that support economic freedom.
Today, the Senate will vote on S.3637, which would extend the Transaction Account Guarantee (TAG) program for another two years.
A response to the 2008 financial crisis, TAG extends deposit guarantee coverage for checking deposits (also known as transaction deposits) above the $250,000 maximum so long as the accounts pay no interest. The program mainly benefits transaction accounts held by businesses, and currently guarantees $1.4 trillion in deposits.
Heritage’s David C. John explains the potential dangers of TAG:
Transaction accounts can move very quickly. Once interest rates start to rise (as they inevitably will), corporations could move their money into interest-bearing accounts or other investments, leaving banks that depend on these deposits to finance lending in serious trouble.
If the market believes the government will not allow big bank depositors to incur losses, large banks will continue to hold an unfair competitive advantage over their competitors. The solution, however, is not to subsidize smaller banks, but rather address the problem of too-big-to-fail, which was exacerbated, not fixed, by the Dodd-Frank bill.
Regardless of TAG’s merits in 2008, the program is bad policy and should not be extended. Instead, Congress should honor the sunset it created and work to phase the program out over the shortest time possible.
Heritage Action opposes S.3637 and will include it as a key vote on our scorecard.