Transaction Account Guarantee program will not be extended
Earlier this month, the U.S. Senate was mired in debate concerning the Transaction Account Guarantee program. This program was created at the height of the U.S. financial crisis as an attempt to provide banks with protection against the volatile economic climate. The program provided federal insurance coverage for deposits kept in non-interest bearing bank accounts. This program successfully increased the financial activity that banks saw during the financial crisis, but the program has failed to receive the support it needed to be extended.
Insurance initiative fails after Senate debate
The Senate had been debating on whether to extend the insurance program for another two years, but these debates have crumbled. Now, the Transaction Account Guarantee program will expire at the end of this year. After the program has expired, the deposit insurance for non-interest bearing bank accounts will revert back to the $250,000 limit that had been the standard before 2008.
Small banks had supported the federal insurance program
Small and mid-sized banks supported the extension of the federal insurance program, but large banks claimed that the program created a false sense of economic security for the country. Small banks claimed that allowing the Transaction Account Guarantee program to expire would mark a massive financial exodus for them, with many consumers taking their money and moving it to larger banks for the sake of security. Larger banks are typically more resilient against the volatile economic trends, thus consumers consider their money more protected with these institutions.
Cost cited as a major concern among lawmakers
The federal insurance program was met with opposition from federal lawmakers who highlighted cost as a major concern. The cost of the Transaction Account Guarantee program was not actually covered by the federal government. Instead, the costs of the program were covered by the banks that had been participating in the insurance initiative. Lawmakers expressed concern over banks’ ability to continue paying fees associated with the program, however, as their failure to do so would place the financial burden of the insurance initiative on taxpayers.