It used to be that a bank account was insured by the FDIC to $100,000. Under the Transaction Account Guarantee (TAG) program that amount was raised to $250,000 during the most acute part of the current financial downturn. The program is set to run out but banks large and small want the Federal Government (really the taxpayer in the end) to continue the backstop indefinitely.
“If full FDIC coverage ends abruptly, transaction account funds in excess of $250,000 will become ‘hot money’ that could flee an institution at the click of a mouse with uncertain economic consequences,” the ICBA briefing paper said, citing the debt crisis in Europe as one possible threat. “The shift in funds could destabilize the recovering banking system, curtail credit, and threaten the fragile economic recovery.”
This is code for: “We don’t want to lose deposits so have a bailout ready and in place if things get hairy.”