Wednesday, April 14, 2010

FDIC recognizes liquidity pressures on community banks

TOO BIG TO FAIL LEGACY

FDIC Chairman Sheila Bair said, “It’s necessary to extend the (Transaction Account Guarantee) TAG program because the lingering effects of the financial crisis that emerged in 2008 in large systemically important banks have now spread to institutions of all sizes, particularly in regions suffering from ongoing economic weakness. Allowing the TAG program to expire in this environment could cause a number of community banks—already under stress—to experience deposit withdrawals from their large transaction accounts and would risk needless liquidity failures. This reflects the continuing legacy of too big to fail and the different liquidity pressures our community banks experience as a result.”

Nearly 6,400 insured depository institutions, about 80 percent of the industry, continue to participate in the TAG program and benefit from the guarantee provided by the FDIC. These institutions held an estimated $266 billion of deposits above the insured deposit limit and guaranteed by the FDIC through the TAG program as of the end of 2009.

Last year the program was extended to June 30, 2010. Under the TAG program, customers of participating insured depository institutions are provided full coverage on transaction accounts. The interim rule gives the Board discretion to extend the program to the end of 2011, without additional rulemaking, if it determines that economic conditions warrant such an extension.

Posted By Valerie Garner

Categories: Business, Finance

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