Banks and credit unions in Northwest Indiana and around the country have been preparing depositors for the expiration of a program that provided unlimited insurance coverage on funds in certain types of accounts.
The program that ends Dec. 31 provided full deposit insurance coverage for noninterest-bearing transaction accounts for institutions insured by the Federal Deposit Insurance Corp. and the National Credit Union Administration. Unlimited coverage is also ending on interest on lawyers' trust accounts.
On Jan. 1, the maximum coverage available for these accounts will be $250,000. Deposits are insured by the government agencies in the event of a bank or credit union failure.
The FDIC implemented the Transaction Account Guarantee program in October 2008 to stem risk in the banking sector by boosting liquidity and giving depositors confidence to place funds n the system. The program has gone through a series of modifications and extensions since then, notably in 2010 when the Dodd-Frank Act extended unlimited coverage for these accounts through the end of 2012.
Dave Rose, Northwest Indiana market president for Michigan City-based Horizon Bank, said the institution has informed customers through signs and conversations with account holders who could be affected. However, he said there has been no reaction from customers to shift their deposits.
"Customers embrace liquidity, and they find that very important especially in these times," Rose said. "... The next step is, the customer has to feel comfortable that their financial institution is safe and sound.
"For the last two years, there's been reluctance to look at other investment vehicles because the loss of liquidity doesn't justify the return that they're going to be getting from a new investment."
Banking groups including the American Bankers Association pushed for the measure to be extended for at least two years to be consistent with the Federal Reserve's monetary policy actions and forecasts for improved economic growth.
In a statement issued earlier this month, American Bankers Association President and CEO Frank Keating said the organization was disappointed the Senate didn't vote on a temporary extension of the program.
The banking industry funds the cost of the program and the organization argued that depositors would have valued the continuation of the program. Keating said in the statement that banks "will work with their business customers to demonstrate the safety of their deposits.”