U.S. FDIC may extend transaction account guarantee

WASHINGTON (Reuters) - U.S. bank regulators proposed on Tuesday to expand a government program that guarantees transaction deposit accounts, which businesses typically use to meet payroll and pay vendors.

The Federal Deposit Insurance Corp proposed to extend the program by six months to June 30, 2010.

The FDIC established the program in October to boost confidence in the banking industry, add more liquidity and reduce the risk of bank runs. At that time, it also launched a voluntary program to guarantee banks' newly issued senior unsecured debt.

The agency is aiming to phase out both programs as confidence in the banking system returns to less critical levels. Banks that choose to stay in the program during the extension would have to pay higher premiums for the guarantee, according to the proposal.

The proposal will be subject to a 30-day public comment period.

More than 7,100 banks are participating in the transaction account guarantee program, which covers about $700 billion in deposits.

(Reporting by Karey Wutkowski; editing by Andre Grenon)