It seems that Wall Street can take billions of taxpayer dollars on a phone call to Treasury and that Wall Street wrongdoers and their boards can get away unpunished and unsanctioned for their misdeeds (unlike scores of local community bank directors who are being sued by the FDIC simply because they sat on a bank board). However, community banks can’t even catch a break on a bank-funded deposit program, not a dime of which is paid for by taxpayer funds. The Transaction Account Guarantee (TAG) program gives community banks a sliver of equal footing with their government-supported, 100 percent guaranteed, too-big-to-fail megabank competitors. This inequity is a sorry state of affairs.
The Fitch rating agency analysis of the end of TAG put it this way:
End of Demand Deposit Protection May Affect Smaller Banks
The upcoming expiration of unlimited FDIC insurance for non-interest bearing demand deposit accounts (DDAs) could have a negative impact on deposit bases at both smaller and less creditworthy banks, according to Fitch Ratings. Large institutions that depositors still regard as too big to fail and financially strong regional banks are likely to be beneficiaries if the insurance program ends as scheduled. …
Any large movements of high-value account balances out of smaller and more financially vulnerable banks could drive a weakening of liquidity and a further erosion of depositor confidence at these institutions. This could drive more consolidation in the industry…
As you can read, hundreds, perhaps thousands, of community banks will be damaged by the end of TAG. With near-zero interest rates through 2015, new tax burdens, Basel III capital guidelines and new mortgage rules going online about the same time as TAG ends, community banks are going to be hammered from multiple directions, which means small-business lending and local financial support for smaller towns, cities and rural America grinds to a halt. And that helps whom? The business case for allowing that to happen is what? It reminds me of the old country song; “Wall Street [and the government] get the gold; Main Street gets the shaft.”
And the saddest thing of all is that I get calls from heads of regulatory agencies, the Treasury and the administration asking, “Why aren’t community banks lending more?” and “What can we do to help?” Really? How sad is that? There are times when I just want to say, “Are you kidding me? This is a joke, right?” But the sad reality is that it is not a joke, it is real. And that reality is crushing Main Street community banks, small businesses and the customers they serve across America.