The FDIC's Transaction Account Guarantee (TAG) Program, a part of the Treasury's TLGP that temporarily backs non-interest bearing accounts with unlimited insurance coverage, expires in June 2010 (extended from December 2009). But it now appears that most large banks have opted out of the program due to cost, and it appears that the days of institutions earning 0.40 or 0.50% in NOW accounts are fast coming to a close. We quote from the FDIC's "Final Rule regarding Limited Amendment of the Temporary Liquidity Guarantee Program to Extend the Transaction Account Guarantee Program with Modified Fee Structure" and from recent commentary from J.P. Morgan Securities below.

The FDIC's website explains, "Over 7,100 IDIs participate in the TAG program, and the FDIC has guaranteed an estimated $700 billion of deposits in noninterest-bearing transaction accounts that would not otherwise be insured.... At this time, IDIs participating in the TAG program pay quarterly an annualized 10 basis point assessment on any deposit amounts that exceed the existing deposit insurance limit."

JP Morgan's Alex Roever and Cie-Jae Brown wrote last week, "This past week the FDIC released its opt-out list for the extended Transaction Account Guarantee Program (TAG). Covered institutions had until November 2 to decline extended unlimited coverage on non-interest-bearing accounts (for a minimum fee of 15bp, up from 10bp). Recall in late August the FDIC extended the non-interest bearing transaction deposit account guarantee to June 2010; it was originally set to expire at the end of 2009. This guarantee is unlimited, covering most traditional demand deposits, checking and oddly enough, NOW accounts that pay interest at or below 50bp."

They wrote again this week, under the subtitle, "FDIC: to fee or not to fee," "Last week we discussed the expiring FDIC Transaction Account Guarantee (TAG) and the intention of most large institutions to opt out of extending unlimited deposit coverage to June 2010. By not extending coverage, large banks avoid fees associated with the TAG, fees that many institutions had passed on to clients during the past year. As with the three previous quarter-ends, the FDIC assesses this fee on guaranteed deposits that exceed the standard $250k deposit insurance."

Roever and Brown continue, "Operationally, the TAG fee differs from standard deposit fees in that it applies to the level of deposits held in insured accounts as of the final day of the quarter. The basic guarantee fee is assessed on average quarterly balances, however. We expect that as with the previous three quarter-ends, depositors will look to place cash in securities maturing over the turn to avoid the fee, as uninvested cash in excess of the average balance for the quarter would be unwelcome by banks and likely incur the additional charges."

Email This Article




Use a comma or a semicolon to separate

captcha image

Money Market News Archive

2024 2023 2022
March December December
February November November
January October October
September September
August August
July July
June June
May May
April April
March March
February February
January January
2021 2020 2019
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2018 2017 2016
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2015 2014 2013
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2012 2011 2010
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2009 2008 2007
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2006
December
November
October
September