“NO” ON S.3637, THE TRANSACTION ACCOUNT GUARANTEE TWO-YEAR EXTENSION
A response to the 2008 financial crisis, TAG extends deposit guarantee coverage for checking deposits (also known as transaction deposits) above the $250,000 maximum so long as the accounts pay no interest. The program mainly benefits transaction accounts held by businesses, and currently guarantees $1.4 trillion in deposits.
Heritage’s David C. John explains the potential dangers of TAG:
Transaction accounts can move very quickly. Once interest rates start to rise (as they inevitably will), corporations could move their money into interest-bearing accounts or other investments, leaving banks that depend on these deposits to finance lending in serious trouble.
If the market believes the government will not allow big bank depositors to incur losses, large banks will continue to hold an unfair competitive advantage over their competitors. The solution, however, is not to subsidize smaller banks, but rather address the problem of too-big-to-fail, which was exacerbated, not fixed, by the Dodd-Frank bill.
Regardless of TAG’s merits in 2008, the program is bad policy and should not be extended. Instead, Congress should honor the sunset it created and work to phase the program out over the shortest time possible.
Heritage Action opposes S.3637 and will include it as a key vote on our scorecard.