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Community Banks Merit Consideration, Too

December 16, 2012
Tim Aiken , The Intelligencer / Wheeling News-Register

While Wall Street financial institutions have benefited from billions of dollars in taxpayer assistance, Congress is on the verge of letting an important bank-funded economic stabilization program expire. Despite continued economic instability in the Ohio Valley and across the nation, the Federal Deposit Insurance Corp.'s (FDIC) Transaction Account Guarantee (TAG) program, which helps small business and municipal depositors, will end on Dec. 31 unless Congress takes action.

Here's some background: The FDIC implemented the TAG coverage shortly after the economic collapse to help stabilize the financial system. Basically, this means that bank deposits held by small businesses, municipal governments and farmers to meet payroll expenses are insured beyond the $250,000 limit required by law. The TAG program - which is fully paid for by the banking industry, not by taxpayers - gives Main Street community banks a shred of equal footing with the megabanks on Wall Street.

But while Wall Street institutions continue to enjoy full government backing due to their too-big-to-fail status, lawmakers have failed to extend the TAG program beyond its year-end expiration to support Main Street. Full deposit insurance was implemented to prevent the sudden withdrawal of deposits. If it is allowed to expire on Dec. 31, approximately $1.4 trillion in transaction-account deposits will become uninsured overnight, and these funds will likely tsunami into the large too-big-to-fail financial institutions because of their explicit government guarantee.

The Financial Services Roundtable (FSR), which represents the mega-large Wall Street financial institutions, opposes extending the TAG program. Is it not enough that the 50 largest banks hold nearly 72 percent of the nation's deposits, contributing to excessive risks at these systemically dangerous financial institutions?

As Bloomberg reported last year, these financial behemoths received $7.7 trillion in guarantees and secret loans during the 2008-2009 financial crisis. Now they want the TAG program, which benefits community banks, to go away. Enough is enough!

Because the financial system remains fragile, community bankers like me are concerned that allowing this deposit-insurance program to expire will have negative consequences on Main Street America. The insurance helps community banks use their deposits to support relationship-based lending in our local communities. This type of banking is fundamentally different from the transaction-based banking practiced by large banks.

The good news is that Congress has the power to extend this FDIC insurance program to keep deposits secure and in our small local communities in West Virginia, Ohio, and around the nation - supporting local growth. That's why community bankers like me are working to get Congress' attention that this program should be extended.

Guest columnist Aiken is president and chief executive officer of Union Bank, based in Middlebourne, W.Va., and serves as a member of the Regulation Review Committee of the Independent Community Bankers of America, and as Vice President of the Community Bankers of West Virginia.

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