US banks renew push for Congress to extend insurance program

Wed Aug 29, 2012 4:16pm EDT

Aug 29 (Reuters) - Bank groups on Wednesday renewed a push to convince the U.S. Congress to extend a financial crisis-era deposit insurance program, arguing that businesses will withdraw funds if the program expires at the end of the year.

A group of 80 state banking associations sent letters to leaders in the House of Representatives and the Senate urging them to approve a two-year extension of the Transaction Account Guarantee (TAG) program.

The program insures bank deposits of more than $250,000, the amount the Federal Deposit Insurance Corp normally covers, in checking accounts that do not pay interest. Regulators created the program during the 2008 financial crisis to reassure depositors that their money was safe and to ensure that businesses and local governments had access to cash.

It was then extended for two years as part of the 2010 Dodd-Frank financial oversight law.

Bank groups argue that if the insurance expires at the end of 2012, as it is currently set to do, businesses will move their money to money-market accounts and other options.

"Failure to continue FDIC coverage of these accounts would create disruption and uncertainty in the banking system and for small businesses, municipalities, hospitals, and other entities that use these accounts to meet payroll and operational expenses," the bank groups wrote.

Bank lobbyists say Congress should give the program another two years to lessen the impact on the U.S. economy of the year-end "fiscal cliff," when tax increases and automatic government spending cuts are due to kick in.

They say that when interest rates eventually rise, depositors will seek interest-paying accounts and the program will expire naturally.

Acting FDIC Chairman Martin Gruenberg has said Congress should determine whether an extension is needed to maintain financial stability.

"We've said all along that it was the financial stability considerations that brought the program into being in 2008," Gruenberg told reporters on Tuesday.

Lawmakers will return from a month-long recess in September and face a long list of tasks, including heading off the fiscal cliff, without much time this year to get through them. Some groups have said Congress could attach a TAG extension to another must-pass bill to ensure its passage.

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