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Wednesday, October 10, 2012

Former FDIC Chairman Suggests Ending TAG Gradually

Former FDIC chairman Shelia Bair in a video interview with the American Banker said the Transaction Account Guarantee (TAG) program—set to expire at years end—should be extended but gradually phased out over the next two years.

Bair noted the TAG program should not be allowed to abruptly expire due to fears funds in these accounts may rapidly exit the banking industry as a result.
Ending it full tilt, going from unlimited [coverage] to zero at the end of the year, with all the other stuff going on at the end of the year, is probably not a good idea.

We don’t have money market funds fixed yet and whether people want to admit it or not, a lot of that money is going to go back into the money market fund industry when the program goes away.
Blair did note the TAG program would need to be phased out in a gradually method at some point, suggesting Congress lower the current unlimited coverage of noninterest-bearing checking accounts to $1 million through 2013. Blair suggested the cap should be lowered again in 2014, before returning the program to the normal $250,000 level in 2015.

In response to the news ABA’s Chief Economist James Chessen stated:
The important thing here is that there is an acknowledgment by a former head of the FDIC that extending the TAG program is appropriate in this economic environment. Her voice is adding to a chorus that says ‘extend TAG in one form or another.’
Read the American Banker article by following the link in the ABARegPolicy twitter feed on the right of the Dodd-Frank Tracker homepage.

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