Is Unpopular TAG an Appropriate MBL Partner?
The Transaction Account Guarantee extension, which both CUNA and NAFCU are both pushing to package with member business lending legislation, could be losing steam in Congress despite the recent introduction of S. 3637 by Senate Majority Leader Harry Reid (D-Nev.).
On Nov. 27, The Financial Services Roundtable, an advocacy group representing the 100 largest financial services companies, said in a letter from President/CEO Tim Pawlenty to Reid and Minority Leader Mitch McConnell (R-Ky.) that not only have bank balance sheets improved since TAG was extended in 2010, continuing the program “may create the misperception of instability, at the very time that the financial services sector has made significant and positive reforms.”
Independent Community Bankers of America President/CEO Camden Fine took to Twitter on Monday in response, likening the FSR to “It’s a Wonderful Life” villain Henry Potter. Fine said on Twitter, “As the FSR TAG letter shows once again, Mr. Potter is still trying to vacuum up Main Street and Bedford Falls - ICBA & George Bailey will fight it.”
Adding to the tide of TAG disfavor, on Monday consultant Robert J. Shapiro emailed Credit Union Times a copy of a report he authored in October that also recommends letting TAG expire on Dec. 31, 2012.
Shapiro, who has advised world leaders such as President Bill Clinton and British Prime Minister Tony Blair, the International Monetary Fund and international business firms in his role as chairman of Sonecon LLC, said unlimited deposit insurance increases moral hazard and represents a threat to the nation’s long-term financial stability.
“Based on economic reasoning and analysis, we conclude that extending the current, unlimited transaction account guarantee would be harmful to the stability and competitiveness of the U.S. banking sector,” Shapiro wrote in the report.
He also added that programs like TAG, which have no limit on deposit coverage, increase the likelihood of another banking crisis because banks engage in riskier behavior.
A Capitol Hill insider who asked to remain anonymous said a Democrat Senate staffer who used to call the extension of TAG all but guaranteed now says the program has only a one-in-10 chance of passing. Treasury Secretary Tim Geithner has spoken out against the extension and the FDIC has not taken a position.
Where does that leave credit unions, who had hoped to hitch their MBL wagon to TAG to create a credit union-bank compromise package that would be palatable to Congress?
CUNA spokesman Pat Keefe said Monday there’s no question TAG has its warts, but it still serves as a starting point for a legislation package.
“We’ll continue to look for ways to match in legislation our needs with those of other community based financial institutions that could advance during this lame duck session,” he said.
Keefe also took a shot at bankers, saying “the fact that the TAG bill is earning more detractors than supporters, at this stage, should be a signal to the banks that they need all the help they can get … including packaging their bill with credit union business lending legislation.”