The U.S. Senate voted on Tuesday to support consideration of an extension of the unlimited federal guarantee on non-interest bearing bank accounts. The FDIC backing made the accounts popular with treasurers as a safe-haven in a market with paltry returns on corporate cash investments. The U.S. House of Representatives has yet to schedule a vote.
The bill, sponsored by Senate Majority Leader Harry Reid, would extend the 2008 emergency Transaction Account Guarantee program until Dec. 31, 2014. It is currently scheduled to expire at the end of this year unless both chambers vote to extend it. The Senate voted 76-20 in favor of opening debate on the bill, but as WSJ reported earlier this week, it is considered a long-shot in the House where leaders have been opposed to a further extension.
“It’s still the general view that it will not get extended and treasurers are scrambling to figure out what to do,” said Joshua Siegel, managing principal of StoneCastle Partners, an asset management firm that invests in banks. “It’s not so easy to find a home for these assets when you are a large corporation and you are sitting on $1 billion, $50 million, to $100 million of cash and you need it to be available on demand.”
An FDIC spokesman declined to comment on the vote.
Corporate treasurers have flocked to non-interest bearing earnings credit rate accounts over the past few years, where they receive bank fees in lieu of interest. The accounts often provide returns on par with or better than treasurys or money market funds. More than $1 trillion in corporate cash is currently insured under the program.
If the program expires at the end of the year, only the first $250,000 of corporate deposits would be insured, versus the unlimited guarantee.
The FDIC said earlier this year that since the Dodd-Frank Act extended the original financial crisis program in 2010, the cost of providing insurance on transaction accounts at failed banks has been about $9.3 billion, or 3% of insured deposits at failed banks on average.
The White House issued a statement ahead of the Senate vote on Tuesday in support of the bill, saying it “played an important role in maintaining financial stability and banking system liquidity for consumers and businesses during the financial crisis.”
Community banks, which often offered high fee rates in lieu of interest on the accounts to attract deposits, have been lobbying heavily to extend the program. Large banks, however, said late last month through the Financial Services Roundtable they were opposed to extending the program, amid concerns it would create a “misperception of instability.”
The U.S. Senate voted on Tuesday to support an extension of the unlimited federal guarantee on non-interest bearing bank accounts. The FDIC backing made the accounts popular with treasurers as a safe-haven in a market with paltry returns on corporate cash investments. The U.S. House of Representatives has yet to schedule a vote.
The bill, sponsored by Senate Majority Leader Harry Reid (D., Nev.), would extend the 2008 emergency Transaction Account Guarantee program until Dec. 31, 2014. It is currently scheduled to expire at the end of this year unless the House also votes to extend it. The Senate voted 76-20 in favor of the bill, but as WSJ reported earlier this week, it is considered a long-shot in the House where leaders have been opposed to a further extension.
Source: CFO Journal
