Community bankers who expect the U.S. Senate to pass a billtomorrow that would extend a program intended to help them retaindeposits also believe they will have a tougher time getting themeasure though the House.

Facing strong opposition in that Republican-controlled chamber,including from Majority Leader Eric Cantor of Virginia and incomingFinancial Services Committee Chairman Jeb Hensarling of Texas,supporters of the Transaction Account Guarantee program may now tryto add the extension to fiscal cliff legislation.

While leading House Republicans oppose the extension, manyrank-and-file members “are not going to want to pick a fight withcommunity banks,” said Brian Gardner, senior vice president ofWashington research at investment bank Keefe Bruyette & WoodsInc. “If it gets through the Senate, the House will go along andlet it get into a fiscal cliff bill.”

The TAG program guarantees $1.5 trillion in non-interest bearingaccounts above the Federal Deposit Insurance Corp.'s general limitof $250,000. It was created in 2008 and extended in 2010 to provideunlimited backing for the accounts to keep them in community banks.Republicans have labeled TAG as a bailout-era program thatshouldn't be extended.

Small businesses, local governments and non-profit organizationsuse the transaction accounts for payroll and other recurringexpenses.

The FDIC said in a Dec. 4 report that community banks now havesufficient liquidity to manage TAG's expiration even if thedeposits it attracts do migrate to bigger institutions.

While Treasury Secretary Timothy F. Geithner angered communitybankers during a Senate Banking Committee hearing in July when hesaid, “it's not necessary to extend” the TAG program, the WhiteHouse issued a statement this week supporting the measure.

“While the administration supports a temporary extension of theprogram, it remains committed to actively evaluating the use ofthis emergency measure created during extraordinary times and aresponsible approach to winding down the program,” according toa statement issued by the White House yesterday.

Cantor objects to the extension because the program was supposedto be temporary, said his spokesman, Roy Cooper. “When initiated atthe height of the financial crisis, this was intended to be atemporary guarantee program,” Cooper wrote in an e-mail. “Themajority leader believes we should not continue to extend thesetaxpayer guarantees and therefore opposes the proposal.”

Depositors' Assumptions

While community banks are healthier than they were in 2008, manysuch bankers worry they'll lose transaction accounts to biggerrivals because of a public perception that big institutions will berescued by the government if there is another crisis.

“If they could extend this just 24 months and say it's over,that would be fine to get over the hump,” said James Getz, chairmanand chief executive officer of $1.8 billion-asset Tristate CapitalBank in Pittsburgh. “For Main Street America this recession is notover.”

That view was supported by Senate Banking Committee Chairman TimJohnson, a South Dakota Democrat.

“Our nation's economy is certainly in a different place than itwas in 2008 at the height of the financial crisis when this programwas created, but with concerns about the fiscal cliff in the U.S.and continued instability in European markets, I believe atemporary extension is needed,” Johnson said on the Senate flooryesterday.

Majority Leader Harry Reid of Nevada is sponsoring the extensionbill in the Senate. He has described it as a “must-do” before theend of the year.

James Ballentine, executive vice president of congressionalrelations and political affairs at the American BankersAssociation, said members of House doesn't share that sense ofurgency.

“Based on conversation held thus far, it has not garneredmust-pass legislation status and you certainly want it to get thatstatus as time winds down in this Congress,” he said.

“House conservatives want to shrink the government safety netand that means letting TAG expire,” said Jaret Seiberg, seniorpolicy analyst at Washington Research Group, a unit of GuggenheimSecurities LLC. “I think for this to get enacted into law, it needsto be part of a much bigger package.”

Gardner, the Keefe Bruyette & Woods Inc. Washington analyst,said the strategy of tying the measure to the fiscal cliff billfaces the risk that House leaders will block unrelated amendmentsif the bill appears overloaded with them. He put the extension'schance of passage in the House at about 50 percent, calling it a“crapshoot.”

Broader Package

Still, Independent Community Bankers of America chief economistPaul Merski said he supports the fiscal-cliff strategy to extendTAG.

“Once it demonstrates it has the support in the Senate it couldbe rolled into a broader package,” Merski said. “Because of thetiming” during the lame-duck session “there's not going to be muchappetite for stand-alone bills.”

ICBA has sent multiple letters to lawmakers urging them tosupport the extension.

“Congress shouldn't be rolling the dice with the fate of $1.5trillion in deposits that will become uninsured and a risk assetfor businesses and state treasurers overnight if TAG is allowed toexpire on Dec. 31,” Camden Fine, president and CEO of ICBA, said ina Dec. 4 statement. “The good news is that Congress holds the powerright now to ensure these deposits remain insured.”

The issue also has divided the banking industry. The FinancialServices Roundtable, whose members include big banks such asJPMorgan Chase & Co. and Citigroup Inc., sent a letter to Reidand Senate Minority Leader Mitch McConnell of Kentucky callingTAG's extension unnecessary. Merski said the Roundtable oppositionhelps the community banks.

“It demonstrates how this is opposed by a handful of the megabanks while over 7,000 mid-sized banks are supporting it,” Merskisaid. “It sets up a distinct vote.”

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