A broad coalition of bankers’ banks – institutions that serve community banks – are urging the extension of full FDIC coverage for nearly $1.3 trillion in small business deposits, according to a release from the Independent Community Bankers of America.
In a letter to congressional leaders, 15 bankers’ banks that serve more than 5,000 community banks said extending the FDIC’s transaction account guarantee insurance beyond its Dec. 31 expiration date is essential to preserving community bank liquidity and small business lending capacity.
“In the current challenging economic environment, an abrupt contraction in liquidity would pose an unacceptable risk to credit availability and the economic recovery,” the bankers said in the letter. “We ask that the Congress extend the FDIC TAG program at the earliest possible opportunity. Banks fully pay for this FDIC insurance coverage through their insurance premiums and no taxpayer money is used.”
The letter noted that approximately $200 billion is deposited in community bank TAG accounts, which include checking accounts used by businesses, local governments, hospitals and other non-profit organizations for payroll and other recurring expenses.
The average community bank under $10 billion in assets has $23 million in TAG-insured deposits, the ICBA said.
A lapse in the coverage could shift the deposits out of community banks and into the nation’s largest banks, furthering excessive and systemically dangerous deposit concentration in just handful of megabanks, ICBA said.
The bankers’ bank letter is the latest show of support for the TAG insurance, which was established in 2008 during the financial crisis to prevent a sudden withdrawal of deposits. A coalition of 32 state community banking associations, the ICBA Minority Bank Council and small business groups recently sent separate letters urging an extension of the coverage beyond the Dec. 31 expiration date.