Dec 11 2012
Harry's Bank Bailout
How long do bankers expect to rely on a 'temporary' rescue plan?
By Wall Street Journal Editoral Board
As early as Tuesday Senate Majority Leader Harry Reid (D., Nev.) will seek to extend a 2008 emergency program that aids banks and their wealthiest customers. Senator Richard Shelby (R., Ala.) tells us that he will be voting no, and taxpayers should hope that a bipartisan majority will join him.
Mr. Shelby rightly says that the program, known as the Transaction Account Guarantee (TAG), represents far too much taxpayer exposure. U.S. banks now hold close to $1.5 trillion in TAG deposits. These are non-interest-bearing accounts, typically owned by businesses, well-heeled individuals and local governments. Whereas regular coverage from the Federal Deposit Insurance Corporation now guarantees up to $250,000, TAG accounts enjoy unlimited protection from the FDIC.
We've never understood why middle-class taxpayers should be forced to stand behind an infinite guarantee for the largest bank customers. Instead of providing an answer, the bank lobby tries to pretend that those taxpayers really don't stand behind it and that it's fully funded by premiums paid by banks. Taxpayers can see for themselves by checking the FDIC website, which proudly notes that "the resources of the United States government stand behind FDIC-insured depositors."
Community bankers in particular say they need TAG to compete with the big banks that benefit from too-big-to-fail, but one bad taxpayer guarantee does not warrant another. The policy goal should be to shrink the taxpayer safety net whenever possible.
Bankers keep saying that they have cleaned up their balance sheets, raised capital, improved underwriting and enhanced their liquidity since the crisis days of 2008. So why do they still need a crisis-era backstop courtesy of Uncle Sugar? And can they really argue for regulatory relief during the same lobbying visit when they ask for an extended federal guarantee?
The House leadership has wisely expressed its opposition to TAG. Now it's up to the Senate to signal an end to the era of bank bailouts. A Tuesday cloture vote could give lawmakers the perfect opportunity to demonstrate a turn toward taxpayer protection and more market discipline. Senators should join with Mr. Shelby and tag this bill out on the floor.