Without quick resolution of the impasse over budget issues, farm country is well aware of the imminent threats to federal farm programs. Less well known is the impending demise of the Transaction Account Guarantee (TAG) program, which provides coverage for non-interest bearing transaction accounts in community banks.
Unless Congress extends the Federal Deposit Insurance Corporation (FDIC) program, it will expire on Dec. 31.
Knowing the uncertainty farmers and their bankers already face going into 2013, worries over the expiration of TAG have recently been addressed by a wide range of agricultural and financial groups. In a joint letter to Senate leaders sent Dec. 5, the groups stated that, “TAG deposits in community banks are a significant source of funding for farm and rural business loans. Premature expiration of TAG could adversely impact the extension of credit. Farmers, small businesses and rural Americans all have a stake in our local communities and the economic recovery.”
A second joint letter to Congress, sent on Dec. 10, warned that, “When combined with the looming uncertainty with respect to the nation’s economy, spending and tax policies, the expiration (of TAG) would act to force depositors to shift significant funds out of current deposits into various accounts to try and guarantee adequate safety. This can only foster a destabilizing effect on businesses, credit, and markets.”
Mark Scanlan, vice president of agriculture and rural policy for Independent Community Bankers of America (ICBA), spoke to Farm Press about the situation on Dec. 10. Having served at USDA’s Office of Congressional Relations under former Agriculture Secretaries Yeutter and Madigan, Scanlan is well versed in farm legislation.
Among his comments:
On the ICBA…
“ICBA represents only community banks – about 5,000 of them across the United States. Because of that we’re geared towards a philosophy where we support community banks working with local businesses, farmers, non-profits and local entities.”
On community bankers and the unknowns of going into 2013 without a farm bill in place…
“The bankers we represent deal with nearly all the commodities addressed in the farm bill and a number that aren’t. So, a number of them are nervous about getting a new farm bill passed.
“Our association has been supportive of passing a new five-year farm bill. We’ve signed onto some (joint) letters urging Congress to come to agreement on new legislation.
“Our view is that much of the work has already been done and they’re pretty close. They’re in the ‘red zone’, so to speak, and are pretty close to putting the ball across the goal line.
“Some of the (farm bill programs are set to) expire and go back to permanent law. That is unsustainable. So, by hook or by crook, we think there will be an extension (of 2008 law) or a new farm bill. Our strong preference is to get a new farm bill done and take away some of the uncertainties farmers are now facing.”
On the TAG program and what it means to farmers…
“There’s about $1.5 trillion of deposits in the Transaction Account Guarantee (TAG) program. Initially the program was started by the FDIC in 2008 during the financial crisis. It helped to ensure there weren’t runs on banks.
“TAG was extended as part of Dodd-Frank to 2012. However, it expires Dec. 31.
“What it allows is for, say, farmers who are selling livestock or harvest and sell a crop to bring those proceeds to the community bank and have those deposits above $250,000 guaranteed.
“Given all the financial turmoil we’ve gone through, a lot of the people with large deposits want to first ensure the safety of their deposit amounts. This program does that. The banks pay assessments to the FDIC for these guarantees so there isn’t any taxpayer funds involved.
“It’s great for the borrower, great for small businesses. It is also helpful for local hospitals, non-profits, or municipalities. They can put their deposits with the community bank, support their community. The bank re-lends these funds for small business loans, farm loans or other loan demands in the community. It’s a good program for the rural economy.”
On whether Congress will act to keep the program in place…
“There will be a vote on the bill that (Senate) Majority Leader Harry Reid has introduced. The bill, S.3637, would extend the TAG program for two years.
“First, the Senate will vote on a motion to proceed. Then, there will be debate and, probably, a couple of hours later will come the final vote. We could know by (Tuesday) evening what the fate of this legislation is.”
On optimism about getting a new farm bill as opposed to an extension…
“I don’t have any inside track on that. But I think everyone in the ag community should keep pushing hard to influence the small cadre of (lawmakers) who will make the final decision.
“I think the farm bill leaders in both the House and Senate have done a commendable job in keeping the ball rolling. And they’re close. There just needs to be some final pushes as the year winds down.”
You’ve been involved with a lot of farm legislation. Have you seen anything akin to what we’re seeing with the latest farm bill and fiscal cliff negotiations?
“Other farm bills haven’t passed smoothly and on time. There have been extensions and so forth.
“I don’t think the difficulty in getting (a new farm bill) passed in unprecedented. The 2008 farm bill was initially the 2007 farm bill and it had a couple of presidential vetoes involved. The process can be sticky.
“My concern is if they push a new farm bill into 2013 and have to depend on a budget where there’s less money in the baseline or Congress is looking for even more money as part of deficit reduction. (Under those scenarios), the farm bill could be hit even more. Some of the programs so important to farmers – crop insurance, conservation and so forth – have been well negotiated in the committees and they’ve seen significant cuts. Push things off another year and it’ll be even more difficult given the budget constraints, which are more difficult now than they’ve ever been.”
“The TAG program guarantees, again, are provided by the FDIC. But it isn’t a taxpayer-funded programbecause banks pay premiums to pay for the insurance. So, it’s a good deal for rural America and customers get the benefit. If money leaves our local community banks it isn’t good for the rural economy.
“We need to protect the diversity of the rural economy and allow institutions, farmers and ranchers to continue working and banking with their local banks.”
December 5 letter sent to Senate leaders.
“Dear Majority Leader Reid and Republican Leader McConnell:
“The FDIC’s successful Transaction Account Guarantee (TAG) program, which provides full insurance coverage for non-interest bearing transaction accounts, is set to expire at year’s end.
“The thousands of farms and agribusinesses we represent produce food for American families and for exports, or provide crop insurance or inputs to producers and, therefore, play a central role in rural economies. We are deeply concerned about the possibility of abruptly losing insurance coverage of transaction accounts and urge the Senate to pass S. 3637, which provides a temporary two-year extension.
“Transaction accounts are used by small and large farmers and agribusinesses, as well as small businesses, municipalities, hospitals and other entities for payroll and other operational expenses.
“These farmers and businesses appreciate the security provided by the FDIC’s TAG insurance for lump sum deposits which are inherent in the seasonal nature of their business. TAG was enacted during the financial and economic crisis to protect depositors and to prevent a sudden withdrawal of deposits that would dislocate the banking system. While economic and financial conditions have improved, they remain fragile and the impact of the year-end ‘fiscal cliff,’ a crisis in Europe, or other events could reverse the gains we’ve made. If full TAG insurance coverage expires, farmers and rural businesses will be forced to weigh shifting their deposits out of the local banks they partner with in their communities.
“TAG deposits in community banks are a significant source of funding for farm and rural business loans. Premature expiration of TAG could adversely impact the extension of credit. Farmers, small businesses and rural Americans all have a stake in our local communities and the economic recovery. Therefore, we urge you to extend TAG.”
Among those signing the letter: Agricultural Retailers Association, American Association of Crop Insurers, American Soybean Association, National Association of Wheat Growers, National Cattlemen’s Beef Association, National Corn Growers Association, and the USA Rice Federation.