The 25 largest banks in the country had a rather exciting first week of January. According to data released by the Federal Reserve, depositors withdrew an astounding $114.1 billion during the week ending January 9. A significant portion of this withdrawal can be attributed to the expiration of the Transaction Account Guarantee (TAG) program
The TAG program provided extra insurance protection for depositors, ensuring their balances, in case their bank becomes insolvent. Extending TAG was part of the fiscal cliff negotiations, but it didn’t make it into the final agreement.
TAG-related withdrawals only account for a portion of the disappearing $100-plus billion. Only a portion of this money was reinvested in the next-safest investment, namely U.S. Treasuries. A significant portion was likely spent on year-end expenses, with another portion going toward investments that may provide greater returns as savers grow wearily of tiny interest rates.
Banks aren’t exactly crying about this loss. With loan demand and loan approvals at such low levels, having too much in deposit costs the banks money, as they must pay for FDIC insurance on the balances and pay depositors interest, as miniscule as it may be. Read the full article at Bloomberg.Read more Finance Watch articles.