By Marcy Gordon
AP Business Writer
WASHINGTON (AP) — The head of the Federal Deposit Insurance Corp. says the agency will decide soon whether to end a government guarantee for special deposit accounts in banks used by businesses.
The guarantee for non-interest-bearing “transaction” accounts was part of a program backing hundreds of billions of dollars in U.S. banks’ debt that was put in at the height of the financial crisis in October 2008.
FDIC Chairman Sheila Bair said a decision will be made in the next 30 days on terminating the unlimited guarantee for the accounts, which supplanted the traditional $250,000 insurance limit.
Businesses often use the accounts for processing their payrolls and other transactions.
It is the latest sign of the unwinding of federal financial rescue programs. Bair says such programs must be ended “as soon as possible.”
The overall guarantee program backed hundreds of billions of dollars in U.S. banks’ debt in the event of payment default by an issuing bank.
The program expired last October for new issuance.
It was intended to help thaw the freeze in bank-to-bank lending. The credit markets began to revive last year.
A significant proportion of business accounts were said to be uninsured, forcing businesses to juggle funds among multiple bank accounts to remain under the $250,000 insurance ceiling per account.
The FDIC guaranteed the transaction accounts when it put the program in by removing the insurance limit for them.
A total of $834.3 billion was guaranteed in the transaction accounts as of Dec. 31, according to FDIC data.
Bair made the comments during an appearance before a gathering of the American Bankers Association.
He also said FDIC examiners cannot overlook high-risk loan practices by banks even as they are taking a balanced approach to bank supervision.
“Regulatory forebearance has not had a good history,” she said, evoking the savings-and-loan crisis of the late 1980s and early 1990s and the government’s treatment of high-risk bank conduct. “Kicking the can down the road, history has shown, can actually increase our losses.”
Lawmakers and business owners have complained in recent months that overly strict directives by federal regulators and examiners have dampened banks’ lending to local businesses.
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