TAG: The End of an Era

While banks like JPMorgan Chase (NYSE:JPM) have predicted that the expiration of the Federal Deposit Insurance Corporation’s Transaction Account Guarantee program on December 31 will result in withdrawals of $100 billion to $300 billion, the U.S. Senate voted against a proposal to extend the program, which was introduced by Senate majority leader Harry Reid, D-Nev.

TAG was introduced at the height of the financial crisis in 2008 to give companies and consumers confidence that their money would not be lost if banks failed. Previously, the FDIC only guaranteed the first $250,000 worth of bank deposits. In comparison, TAG protected an unlimited amount of money if the funds were deposited in a non-interest-bearing account.

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In more economically stable times, the concept of placing large sums of money in an account that paid no interest would have interested few parties. Yet in recent years, with bond yields decreasing, TAG has become more appealing. In the past two years, TAG accounts have doubled in size; in the third quarter of 2012, the $1,500 billion held in non-interest-bearing accounts represented 13 percent of total bank assets…