Citigroup, JPMorgan Chase & Co and Wells Fargo are planning to exit the Federal Deposit Insurance Corp’s (FDIC) Transaction Account Guarantee (TAG) program on December 31, reported Bloomberg quoting the spokesmen of the three banks.
Reportedly, the US government had set up the program in October 2008 to insure checking accounts above the standard $250,000 limit, to restore confidence in the banking system and avoid a collapse of financial markets.
However, in August this year, in a bid to wean banks off guarantees and bailout packages, FDIC said that it would increase fees for banks that stay in the TAG program past December 31. FDIC also stopped guarantees of bank bonds on October 31. The checking-account insurance program is set to end on June 30, 2010.
In an interview to the news gency, Tanya Azarchs, analyst at Standard & Poor’s, said: “Banks may declare plans to exit partly because staying in would signal weakness. It’ll be construed as a sign of being worried about something. The environment around them has improved a lot, and people generally feel that the government ownership provides a lot of comfort.
“It is simply an economic cost-benefit analysis, as to whether they think they’re getting enough value for the price that the guarantee carries.”
