“Most of America is focused on the fiscal cliff and the over $600 billion in tax and spending provisions set to expire at the end of 2012.
But Gillian Tett at the Financial Times warns of another ‘cliffhanger’ that Americans should pay attention to.
This cliffhanger she writes is the expiration of the Transaction Account Guarantee (TAG) program, introduced by the Federal Deposit Insurance Corporation (FDIC) in 2008.
Bank of America’s Priya Misra and Brian Smedley warned about this in September.
The TAG program allowed companies and individual put any amount of money into a non-interest account, and the entire amount would be guaranteed by the FDIC in the event that the bank went under. Prior to the TAG program the FDIC only guaranteed $250,000.
In the past two years, Tett points out that TAG accounts doubled to $1.5 trillion with over 50 percent of this coming from corporate accounts.
There is a chance that corporates are comfortable with American banks, and they’ll be happy to leave their deposits in place or withdraw them at a slow pace.
But some estimate that about $600 billion could be withdrawn, and with that end of month deadline fast approaching, Tett points out the worst case scenario: ”
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