The Antidote to Deposit Concentration? TAG

I recently wrote that extending full FDIC coverage of noninterest-bearing transaction accounts is a matter of urgency. And it is. Congress has to act by Dec. 31, when coverage of $1.3 trillion in deposits is slated to end overnight. On Capitol Hill in an election year, getting anything done by Dec. 31 is a tall order.

But extending TAG coverage is also crucial to stopping the further concentration of the nation’s deposits into a handful of the very largest banks. Known as “TAG” after the original FDIC program launched in 2008, the coverage has helped stabilize the banking system and slow the ever-rising concentration of banking deposits into fewer and fewer banks. Whereas Wall Street institutions can easily attract small-business and municipal deposits because of their implicit government guarantee (even Moody’s affirms the government guarantee of the nation’s largest financial firms), community banks rely on TAG to provide certainty to their customers in the midst of a fragile economic recovery. So the TAG program helps prevent even greater deposit concentration in a handful of large institutions while also mitigating their funding advantage—at no cost to taxpayers.

Meanwhile, keeping deposits in community banks is vital to sustain our economic recovery. Community banks are the nation’s leaders in small-business lending, so turning off an important source of funding would be a disaster for Main Street communities.

We at ICBA are calling for a temporary, five-year extension of the FDIC’s TAG coverage. This will help preserve the economic recovery on Main Street and support equity in our banking system. Help us make the case by calling on Congress to take action. It’s only right.

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