Banks’ anti-MBL rhetoric a gamble?

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Nov. 29, 2012 - Banking trades argue that they need not two, but five more years of full deposit insurance coverage of noninterest-bearing transaction accounts for the sake of financial system stability, but Hill reports say the banks would give that all up to stop more credit union member business lending.

The Independent Community Bankers of America says allowing the “transaction account guarantee” program to expire this year-end will be bad for the economy. “Because the global banking system and the economic recovery remain fragile and depositors remain risk adverse[sic],” it says in a set of online talking points, “expiration of full insurance coverage for transaction accounts carries the risk of abrupt dislocation and other unintended consequences for a financial sector that is just regaining its footing.”

The ICBA says losing TAG would cause uncertainty for banks and small businesses. “Bank examiners are already pressing banks to account for how the potential loss of coverage would affect their liquidity ratios,” the ICBA says in its own online issue page.

Even so, the American Banker reported late Tuesday that banking industry lobbyists are warning against combining a TAG extension with more MBL authority for credit unions. And the online PoliticoPro (a Politico.com publication) quoted American Bankers Association lobbyist James Ballentine stating his group would go so far as to oppose such action,even if the alternative was no TAG extension at all.

NAFCU lobbyist Brad Thaler is quoted in both articles. He points out that 1) the current noise from banking trades means they fear success for MBL, and 2) opposing a combined TAG/MBL package calls into question the importance of the deposit insurance provision to the banking industry.

“Small businesses need credit, and by the banks’ own account, they also need certainty on deposit safety,” Thaler added Wednesday. “Banks say losing TAG puts $1.4 trillion in bank deposits at risk. We’re not sure why the banks would rather risk their customers than let credit unions fully serve their own members.”

Thaler, noting Senate Majority Leader Harry Reid’s promise to bring the MBL bill, S. 2231, up for Senate action, said NAFCU is continuing to press for a vote before this session is out.