STOCK MARKET WATCH -- Wednesday, 26 December 2012

[Demeter]

23. Small Banks to Depositors: Trust Us

http://online.wsj.com/article/SB10001424127887323291704578201684061152970.html?mod=dist_smartbrief

Small banks around the country are spending the last days of 2012 trying to assure customers they can be trusted to hold their deposits, as the government's unlimited insurance on certain accounts expires this year.

Many of the affected accounts are essentially noninterest-bearing checking accounts that hold more than $250,000. The Federal Deposit Insurance Corp. granted unlimited insurance to these accounts—often held by businesses, municipalities and other entities that require quick access to large amounts of money for payrolls and other needs—at the height of the financial crisis to help instill confidence in the nation's smaller banks. The goal was to prevent account holders from moving money from smaller institutions to larger ones viewed by customers as less likely to fail.

After the program, known as the Transaction Account Guarantee, expires Dec. 31, noninterest-bearing accounts will receive the same $250,000 insurance coverage that the FDIC provides for other depositors. Roughly $1.5 trillion of deposits are covered by the expiring guarantee, according to the FDIC....

...The expiration of TAG comes after smaller banks unsuccessfully lobbied Congress to extend the unlimited coverage on the grounds that its elimination would give an unfair advantage to large banks. They also said that the guarantee is good for the financial system because it helps ensure that deposits are diversified among banks of all sizes....