Deposit insurance extension requested from Congress by banks

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The lobby was made out of fear of a withdrawal of billions of dollars by businesses.

Banks are urging Congress to extend the special U.S. deposit insurance at the end of 2012 instead of allowing it to expire, out of growing concerns that companies will begin withdrawing billions of dollars.

The Transaction Account Guarantee (TAG) program is the center point of this issue.

This is the form of deposit insurance that protects all credits into bank checking accounts above the Federal Deposit Insurance Corp’s $250,000 in coverage. The main benefit to TAG is for businesses and local governments that need to be able to obtain large quantities of cash in order to meet their payroll and other financial obligations.

Approximately $1.3 trillion of this deposit insurance’s insured amounts currently exist.

They are sitting in both small and large banks, without paying interest, across the United States. The TAG program was initially developed by the U.S. Treasury and bank regulators during the financial crisis of 2008, in order to help attract bank cash and provide depositors with reassurance that their money would be kept safe. The program was extended by congress in 2010, to keep it running until 2012 comes to a close.

Should the deposit insurance program be allowed to expire, it is likely that businesses will withdraw their money and place it in short term alternatives such as prime money market accounts.

Many large organizations feel that the program is an extremely beneficial an important deal. It addresses the two main issues faced by treasurers, which are the return on cash from discounts offered by the banks instead of interest on the deposited amount, and safety. Should the TAG program expire, companies will need to look toward other opportunities to keep their money safe and accessible in a worthwhile way.

Small banks are also feeling the tension of the potential loss of the TAG deposit insurance program, as they were able to use it to attract local borrower deposits in order to fund the type of lending that had previously been exclusive to larger banks – which are typically considered to be more safe.

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