Small Banks in U.S. Face Their Own Year-End Cliff
As the U.S. economy inches toward the "fiscal cliff," the country's small banks are approaching a cliff of their own, in a development that could pinch short-term lending rates.</br></br>On Jan. 1, a program that insures an unlimited amount of money in non-interest-bearing accounts will expire unless Washington moves to extend it. Without the Transaction Account Guarantee program, or TAG, an insurance cap resets to $250,000, affecting about $1.6 trillion in deposits.</br></br>And without insurance protection, depositors may be compelled to move amounts above $250,000 to other venues deemed safer, leaving the banks with less business.</br></br>J.P. Morgan estimates that, of that total, $579 billion could be on the move.</br></br>Big financial firms would be on the receiving end of these flows, where cash would either be moved into the perceived safer hands of larger banks or earn a sliver of interest at a conservative money fund. Safety is a big concern for investors as the federal government faces the potential "fiscal cliff," a set of tax increases and spending cuts that kick in on Jan. 1 if lawmakers can't reach a compromise plan, and which could send the economy into recession.