Community Bankers Association of Illinois

FDIC Extends TAG Program through December 31, 2010

On Tuesday April 13, the FDIC board approved a six-month extension of the Transaction Account Guarantee (TAG) program through December 31, 2010. The rule allows for an additional 12 month extension without promulgating a new rule if the FDIC Board determines economic conditions warrant the additional extension. CBAI joined with other state community bankers associations and the ICBA in urging the FDIC to approve an extension to help community banks avoid liquidity problems as the nation's economy continues to recover from the current recession.

The TAG program is a component of the Temporary Liquidity Guarantee Program (TGLP). It was created in 2008 to discourage customers from withdrawing deposits from community banks during the financial crisis. The original expiration date was December 31, 2009, but last August, CBAI and ICBA fought for and won a six-month extension through June 30 of this year.

According to the FDIC, approximately 80% of the industry, or 6,400 financial institutions, participate in the program, and an estimated $340 billion of deposits were guaranteed as of year-end 2009. Banks pay an additional fee to the FDIC to participate in this program. In a release from the FDIC, Chairman Sheila Bair said:

    "It's necessary to extend the TAG program because the lingering effects of the financial crisis that emerged in 2008 in large systemically important banks have now spread to institutions of all sizes, particularly in regions suffering from ongoing economic weakness. Allowing the TAG program to expire in this environment could cause a number of community banks—already under stress—to experience deposit withdrawals from their large transaction accounts and would risk needless liquidity failures. This reflects the continuing legacy of too big to fail and the different liquidity pressures our community banks experience as a result."

The FDIC has also modified the basis for calculating the assessment, and April 30, 2010 is the deadline to opt-out of the program. Bankers should review the Financial Institution Letter for these and other important details.

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