News Column

State Treasurers Urge Two-Year Extension of TAG Program

Dec 7 2012 12:00AM

Marketwire

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LEXINGTON, KY -- (Marketwire) -- 12/07/12 -- Citing significant benefits to state and local governments and the U.S. banking system, members of the National Association of State Treasurers (NAST) are urging the White House and Congress to pass a two-year extension of the Transaction Account Guarantee (TAG) Program (ending Dec. 31, 2014). Representatives of NAST are scheduled to meet with senior White House and U.S. Treasury officials, along with Congressional leaders, over the next week to discuss the importance of, and need for, the successful TAG Program.

The Federal Deposit Insurance Corporation (FDIC) launched the TAG Program in 2008 in the midst of the global financial crisis. The TAG Program, through the FDIC, guarantees funds held in non-interest bearing transaction accounts. Its purpose is to strengthen confidence in the banking system and to ensure liquidity. The TAG Program is set to expire on Dec. 31, 2012 -- the very date the White House and Congress would need to reach resolution on issues relating to the "fiscal cliff."

"The TAG Program helps ensure the safety of public funds," said NAST President and Nevada State Treasurer Kate Marshall. "While NAST understands that some of the nation's largest banks may oppose its continuation, we believe it would be imprudent to abruptly terminate this program without providing a proper time period for transition."

State and local governments, many of the nation's largest corporations, medium and small businesses, universities, charities and hospitals rely upon the security of these federally insured accounts to ensure that their funds are not subjected to market instability and that these funds will be available, even in the extreme case of a bank failure. A two-year extension of the TAG Program would not only allow states and localities without effective collateralization requirements sufficient time to develop such policies in light of the health of the U.S. banking system, but would protect public funds from market volatility and the instability related to the "fiscal cliff" resolution (or lack thereof) and the upcoming debt ceiling debate.

"States and local governments are already experiencing some impact of the termination of the TAG Program," said Maryland State Treasurer Nancy Kopp. "A reduction in the availability of U.S. Treasury and Agency securities due to increased demand for these products is impacting short term rates. We would expect additional pressure on U.S. Treasuries and Agency securities as investors shift deposits into funds and collateral pools backed by these securities. Without question, the TAG Program should not be abruptly eliminated from the U.S. banking system. A phase out of the program will reduce the current volatility of the financial markets and provide ample time for state and local governments to consider safe alternative placement for taxpayer funds."

"While we recognize that the health of the U.S. banking system has improved since the inception of the TAG Program in 2008, there remain many challenges facing the system over the course of the next few months -- including issues relating to the 'fiscal cliff,' potential financial contagion from problems in the Eurozone, slow economic growth and the upcoming debate on the U.S. debt ceiling," said Delaware State Treasurer Chip Flowers. "The TAG Program provides federal protection to public funds, increases stability and helps diffuse money throughout the banking system to avoid concentration of deposits in a small number of large banks -- potentially creating deposit allocations in large banks equal to or higher than pre-2008 levels. We hope that the White House and Congress will not prematurely terminate this critical program until these challenging issues are addressed and state and local governments have sufficient time to find viable alternatives to protect taxpayer funds."

During its recent annual conference, NAST voted to extend its resolution supporting the TAG Program. To see the full resolution, visit www.nast.org.



Contact:
Lisa Cleveland
Director of Communications
National Association of State Treasurers
Phone: (859) 244-8151
E-Mail: lcleveland@csg.org





Source: Marketwire