WASHINGTON -- The Senate on Thursday failed to extend a special unlimited deposit insurance program largely used by businesses that was created during the financial crisis to help stabilize the banking system.
With the crisis long past, opponents of the Transaction Account Guarantee Program, which backs about $1.5 trillion in bank deposits, successfully argued it was no longer necessary and should be allowed to expire at the year's end.
The special program has been supplementing the government's regular deposit insurance coverage of up to $250,000 per account, which will remain in place.
Small banks fought to continue the special program, saying they feared its expiration would lead businesses to move money to large banks that are viewed as less likely to fail.
But big banks opposed an extension because they said it could signal the industry was unstable and still needed government support. They were joined by Republicans, who complained the program needlessly put taxpayers on the line for potential losses.
Legislation to extend the program for two years failed on a procedural vote, with Republicans leading the charge against it. The bill, which needed 60 votes to advance, failed as only 50 senators backed tit.
"We’re not in a financial crisis anymore," Sen. Patrick Toomey (R-Pa.), a leading opponent of the program, told his colleagues before the vote. "I don’t understand how you can justify it now, in an environment that doesn’t even faintly resemble the crisis circumstances of 2008."
The Obama administration had supported the extension and what it called "a responsible approach to winding down the program."The program, run by the Federal Deposit Insurance Corp., sits on top of the agency's existing insurance on accounts with as much as $250,000. It provides unlimited coverage for non-interest bearing transaction accounts that are used by businesses and state and local governments.
"Not extending this critical deposit coverage due to procedural roadblocks threatens to further concentrate deposits in too-big-to-fail financial institutions and undermine the economic recovery," said the Independent Community Bankers of America, which represents small banks.
“With so much uncertainty facing the nation’s economy, now is not the time to pull the plug on this important source of stability," the group said.
But the Financial Services Roundtable, which represents the nation's largest banks, opposed the extension because it implied the financial system was still weak.
"The bill would have sent the wrong message about the strength of the banking industry," the group said Thursday.