TAG: The Biggest Fight You’ve Never Heard Of

But for all the drama surrounding the fiscal cliff, nearly every media outlet, lawmaker and lobbyist would be focused on the Transaction Account Guarantee (TAG) program, a byproduct of the 2008 financial crisis.  Heritage’s David John explains, “TAG is bad policy, and it should be phased out over the shortest time possible.”

Instead of phasing out this market-distorting program, the Senate is considering S.3637, which would extend TAG for another two years.  Heritage Action is key voting against the bill, which even the Obama administration previously acknowledged was not really necessary.

Aside from Obama’s flip-flop, there is another dirty little secret: even bankers who support the program have been preparing for its demise for some time.  In other words, despite the rhetoric, banks are well aware the program may sunset on December 31, 2012 as scheduled.

Don’t take my word for it, though.

In November, the President and CEO of the Texas Bankers Association warned (sub. req’d) the program could end.  In his monthly letter, Eric Sanberg wrote, “The industry will just have to continue to work on this issue and be prepared if the TAG is not extended.”

A month earlier, Li Yu, Chairman and CEO of Preferred Bank explained (sub. req’d) the company’s “high level of cash on the balance sheet was planned however, in light of the pending expiration of the Transaction Account Guarantee program.”

That same month, Harold Carpenter, CFO of Pinnacle Financial Partners Inc., projected confidence to investors on a conference call (sub. req’d), saying, “based on the work we’ve done to date, we don’t believe our bank will be significantly impacted one way or the other regardless of whether the TAG program is extended.”

Clearly, folks within the banking industry are well aware of the possibility TAG will expire at the end of the year and are preparing for it.

And just to be clear, some bankers view the program for what it is: a subsidy.  Chris Newbury, the FDIC’s associate director in our Division of Insurance and Research, explained (sub. req’d) some bankers “indicated that they thought the TAG should be allowed to expire.  And when the[y] expressed this, they, you know, typically said that it was a subsidy, and we wanted to reduce those just on general principle.”


Senators should remember that word, and what it means, when they cast their vote today.

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