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."

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