Washington area community banks say they are bracing for large scale withdrawals when a special federal guarantee expires on Dec. 31 that safeguards money held in accounts that don’t earn interest.
The temporary provision, called the Transaction Account Guarantee, was put into place by the Federal Deposit Insurance Corp. during the recession. It insures all funds in non-interest bearing bank accounts, which are typically used by municipalities and small businesses for payrolls. Once the provision expires, the FDIC will insure up to $250,000 in any given account, up from $100,000 before the financial crisis.
When the program was first implemented in October 2008, some financial institutions such as Sandy Spring Bank in Olney say they had an influx of new clients and deposits.
“The combination of the TAG program and falling interest rates led to a dramatic increase [in new customers and deposits] for us,” said John F. Goedeke Jr., a senior vice president at Sandy Spring Bank. “People started closing up their money market accounts. The logical place to put that money was in checking accounts where it was insured.”