Community banks are too important to fail

I’m sorry, but if you repeat a lie often enough, it still doesn’t make it the truth. That hasn’t stopped Wall Street apologists from continuing the stale assault that the Transaction Account Guarantee program is a taxpayer-supported government bailout. The latest potshots come from The Wall Street Journal, which has again concluded that because the government should reduce its support for the banking system, somehow TAG should be the first to go.

We’ve screamed and hollered about how inaccurate and unfair this statement is—that in a time of too-big-to-fail government guarantees, a bank-funded deposit insurance program is on the chopping block. But it hasn’t gotten us very far. They refuse to publish our responses on their op-ed page, and they seem to forget our perspective when they repeat their half-truths. Well, we’ve once again responded, but I’ll be darned if it’s nowhere to be found in the pages of the Journal. Here’s what the editors don’t want you to read.

Bank-Funded Deposit Coverage Is Anti-Bailout Measure

The Independent Community Bankers of America and the nation’s community bankers fully agree that the banking system should be weaned off of taxpayer support (“Time to Wean Banks From Crisis Backstop”). That is why ICBA and others advocate the breakup of the too-big-to-fail financial institutions that enjoy unlimited government support and have, essentially, become indistinguishable as private businesses or units of the federal government. However, not a dime of taxpayer dollars goes toward the FDIC’s full coverage of noninterest-bearing transaction accounts. The Transaction Account Guarantee coverage, like other deposit insurance, is fully paid for by the banking industry.

And while detractors point out the largest banks hold the bulk of TAG deposits, this should come as no surprise—they hold most of all the nation’s deposits. The four largest banks alone hold 40% of the nation’s deposits, a dangerous concentration that continues to grow. This is all the more reason why extending TAG is so important: if the program is allowed to expire, the largest banks will still hold over $1 trillion in TAG deposits, yet only the first $250,000 of each account will be explicitly insured. The rest will enjoy an implicit guarantee, based on the banks’ too-big-to-fail status. If the author is so concerned with government backstops for the private sector, he should be doubly troubled by the thought of the American taxpayer underwriting all those concentrated deposits in the absence of a bank-funded TAG program.

Although they might hold fewer TAG deposits because of their scale, community banks do more with less. In addition to helping small businesses, farmers and municipalities meet payroll and other recurring expenses, community banks use their limited TAG deposits to support relationship-based lending in local communities. This type of banking is fundamentally different from the transaction-based banking practiced by large banks, which use deposits for all kinds of investments that do nothing for local communities. This further illustrates why any flight of deposits from smaller banks due to a TAG expiration would be so devastating to local communities.

So, instead of continued government subsidies to too-big-to-fail banks, let’s temporarily extend TAG to support Main Street economies and jobs.

Camden Fine is president and chief executive officer of the Independent Community Bankers of America in Washington, D.C.

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