After that, businesses and municipalities with checking account balances that exceed the FDIC's regular deposit insurance limit should take heed and monitor the health of their banks.
The Transaction Account Guarantee, or TAG, is part of the FDIC's Temporary Liquidity Program, which was established in October to improve stability in the banking system. Along with TAG, the FDIC has been guaranteeing senior debt for banks and thrifts for a fee under its Debt Guarantee Program.
The FDIC temporarily increased its regular deposit insurance limit for individuals to $250,000, a policy originally set to expire at the end of this year, along with the TAG. While the individual $250,000 limit has been extended through 2013, the FDIC is phasing out the limit waiver on transaction accounts. After June 30, the transaction accounts will be subject to the same limits as other individual deposit accounts.While the TAG is a voluntary program, more than 7,100 banks are participating. The program provides deposit insurance coverage on an estimated $700 billion in transaction account balances that wouldn't normally be covered.
This program has alleviated the risk of a run on deposits at many troubled banks. Even with the TAG and increased individual coverage, there have been large amounts of uninsured balances at some recently-failed institutions, including Guaranty Bank, which reported $1.6 billion in uninsured deposits as of June 30 and failed on Friday, and BankUnited Financial, which failed in late May after reporting $2.4 billion in uninsured deposits as of March.
When NetBank failed in October 2007, TheStreet.com heard from a business that lost $500,000 because money had been wired into its checking account right before the failure. These were operating funds that came in from customers and were owed to vendors.