White House supports extension of bank guarantee program

By Peter Schroeder - 12/11/12 12:52 PM ET

President Obama officially supports a two-year extension of an expiring bank guarantee program, but wants to see it eventually wound down.

In a statement of administration policy issued Tuesday, the White House threw its support behind a Senate bill that would extend the Transaction Account Guarantee (TAG) program to the end of 2014.

The administration's support had not been explicit before, and backing from the White House could help the measure clear a key procedural vote in the Senate on Tuesday afternoon.

The TAG program, which was started during the financial crisis to ease concerns on bank stability, allows bank regulators to provide an unlimited backstop to specific accounts. These non-interest bearing accounts are commonly relied upon by small businesses and local municipalities as places to park cash for brief stretches, and roughly $1.4 trillion is held in the accounts currently.

The White House said in its statement that the program has played an "important role" in stabilizing markets, but warned that it did not want to see the program extended over and over again.

"While the administration supports a temporary extension of the program, it remains committed to actively evaluating the use of this emergency measure created during extraordinary times and a responsible approach to winding down the program," the statement read.

The statement should ease concerns from banking groups pushing for the extension, after earlier actions by the White House painted a murky picture of its thoughts on the program.

In July, Treasury Secretary Timothy Geithner told members of the Senate Banking Committee that he believed the program should not be extended. But a two-year extension of the program was included in the White House's proposal for the latest continuing resolution passed by Congress in September.

Community banks have been pushing hard to get the program extended yet again, cautioning that the economy is still not stable enough to remove the safety net, and that account holders could move to larger banks if the guarantees were to disappear.

But larger banks and some conservative groups have argued that it is high time for the program to expire, noting that the financial system is in a much better place now than when the program was put in place.