The Transaction Account Guarantee extension, which both CreditUnion National Association and National Association of FederalCredit Unions are pushing to package with member business lendinglegislation, could be losing steam in Congress despite the recent introduction of S. 3637 bySenate Majority Leader Harry Reid (D-Nev.).

On Nov. 27, The Financial Services Roundtable, an advocacy grouprepresenting the 100 largest financial services companies, said ina letter from President/CEO Tim Pawlenty to Reid and MinorityLeader Mitch McConnell (R-Ky.) that not only have bank balancesheets improved since TAG was extended in 2010, continuing theprogram “may create the misperception of instability, at the verytime that the financial services sector has made significant andpositive reforms.”

Independent Community Bankers of America President/CEO CamdenFine took to Twitter on Monday in response, likening the FSR to“It's a Wonderful Life” villain Henry Potter. Fine said on Twitter,“As the FSR TAG letter shows once again, Mr. Potter is still tryingto vacuum up Main Street and Bedford Falls – ICBA & GeorgeBailey will fight it.”

Adding to the tide of TAG disfavor, on Monday consultant RobertJ. Shapiro emailed Credit Union Times a copy of a reporthe authored in October that also recommends letting TAG expire onDec. 31, 2012.

Shapiro, who has advised world leaders such as President BillClinton and British Prime Minister Tony Blair, the InternationalMonetary Fund and international business firms in his role aschairman of Sonecon LLC, said unlimited deposit insurance increasesmoral hazard and represents a threat to the nation's long-termfinancial stability.

“Based on economic reasoning and analysis, we conclude thatextending the current, unlimited transaction account guaranteewould be harmful to the stability and competitiveness of the U.S.banking sector,” Shapiro wrote in the report. He added thatprograms like TAG, which have no limit on deposit coverage,increase the likelihood of another banking crisis because banksengage in riskier behavior.

A Capitol Hill insider who asked to remain anonymous said aDemocrat Senate staffer who used to call the extension of TAG allbut guaranteed now says the program has only a one-in-10 chance ofpassing. Treasury Secretary Tim Geithner has spoken out against theextension and the FDIC has not taken a position.

Where does that leave credit unions, who had hoped to hitchtheir MBL wagon to TAG to create a credit union-bank compromisepackage that would be palatable to Congress?

CUNA spokesman Pat Keefe said Monday there's no question TAG hasits warts, but it still serves as a starting point for alegislative package. “We'll continue to look for ways to match inlegislation our needs with those of other community based financialinstitutions that could advance during this lame duck session,” hesaid.

Keefe also took a shot at bankers, saying “the fact that the TAGbill is earning more detractors than supporters, at this stage,should be a signal to the banks that they need all the help theycan get … including packaging their bill with credit union businesslending legislation.”

For previous coverage, see Unlimited FDIC Coverage Could Be Extended and Companies Still Piling Up Cash.

Credit Union Times