Among the many policy responses, the Federal Deposit Insurance Corporation (FDIC) established the Temporary Liquidity Guarantee Program (TLGP) on October 14, 2008, to strengthen confidence and to encourage liquidity in the banking system. TLGP had two parts: a Debt Guarantee Program (DGP) and a Transaction Account Guarantee (TAG) program. The TAG program currently provides unlimited deposit insurance for $1.4 trillion in noninterest-bearing transaction accounts (NIBTAs). NIBTAs are frequently used by businesses and local governments as a cash management tool, often for payroll transactions, but any depositor whose account meets the eligibility criteria receives unlimited deposit insurance coverage. In spite of a loss of confidence in other parts of the financial system, the insured banking sector saw few bank runs during the financial panic. The establishment of TAG, in addition to the existing deposit insurance and other measures taken by regulators, may have bolstered depositors' confidence in banks as reliable counterparties. Deposit insurance can potentially create moral hazard by neutralizing market mechanisms that penalize the banking system for taking on additional risk. The TAG program established by the FDIC expired on December 31, 2010, and was replaced on the same day by the TAG program as established by Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. On December 31, 2010, the Dodd-Frank Act's change to the definition of insured deposit became effective; all eligible NIBTAs were covered, increasing the amount of deposits insured by TAG to approximately $1.4 trillion (on December 31, 2010, there was a one-day overlap of the original FDIC TAG program and the Dodd-Frank TAG program, as illustrated below in Figure 2 ). The Dodd-Frank Act's changes to the definition of insured deposits are temporary and due to expire on January 1, 2013; the unlimited deposit insurance for NIBTAs expires on that date and returns to the FDIC's $250,000 standard maximum deposit insurance amount. Though the FDIC established TAG in 2008, changes to the FDIC's authority made by the Dodd-Frank Act may prevent the FDIC from having the option of extending TAG. An extension of TAG, therefore, may require congressional action. On November 26, 2012, Senator Harry Reid introduced S. 3637 , a bill to temporarily extend the TAG program for two years. If TAG expires, the options available to depositors can be simplified to two general choices: (1) depositors could leave some or all of their money in the traditional, insured banking sector or (2) they could move some or all of their money out of the traditional banking sector. Uninsured Deposits at Safer or Larger, More Interconnected Banks

Some depositors may attempt to recapture the safety they would lose if TAG expires by shifting their deposits to safer banks, which for some may mean to one of the largest or most interconnected banks. The expiration of TAG may increase the concentration of deposits in the largest banks. As shown in Figure 4 , money market funds are the second-most popular individual form of short-term investment according to a survey of financial professionals and will be the focus of this section. Potential Impacts If TAG Is Extended

Some have raised concerns about what effect an extension of TAG would have on the FDIC's Deposit Insurance Fund (DIF). Second, bank regulators examine banks and attempt to prevent them from acting in a way that could put insured deposits at risk.
The Federal Deposit Insurance Corporation's (FDIC's) initial Transaction Account Guarantee (TAG) program provided unlimited deposit insurance for noninterest-bearing transaction accounts (NIBTAs). A NIBTA is an account in which interest is neither accrued nor paid and the depositor is permitted to make withdrawals at will. NIBTAs are frequently used by businesses, local governments, and other entities as a cash management tool, often for payroll transactions. In spite of a loss of confidence in other parts of the financial system, the insured banking sector saw few bank runs during the financial crisis. The establishment of TAG in addition to the existing deposit insurance may have helped bolster depositors' confidence in banks as reliable counterparties and prevented them from suddenly withdrawing their deposits.
The second TAG program, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), was a temporary extension of the original program with some changes. This TAG program is set to expire on December 31, 2012. If the program expires, the $1.4 trillion currently insured by TAG in NIBTAs would no longer have unlimited deposit insurance but would have the $250,000 standard maximum deposit insurance amount. Changes to the FDIC's authority made by the Dodd-Frank Act make it unlikely that the FDIC could act to extend the program under its own authority. An extension may require congressional action.
Opinions are divided on the merits of extending the program. Underlying the divergent policy views are contrasting opinions about the state of the economic recovery and the role of the government in guaranteeing bank liabilities and in determining the size of the traditional banking system.
If the TAG program expires, depositors could keep their deposits in the traditional banking system, or they may decide to transfer some or all of their deposits to nonbank investment options. TAG deposits that remain in the banking system may migrate to the largest or most interconnected banks if large depositors view these as safer, or TAG deposits could move away from the largest banks in response to changes made by the Dodd-Frank Act. TAG deposits that go to nonbanks may flow to money market funds, which are often cited as one of the most popular short-term investment options. A decrease in deposits could affect the liquidity position of a given bank—the ability of the bank to meet its liabilities—but the overall liquidity of the banking system has increased since 2008.
If the TAG program is extended, the resulting risk exposure could put additional strain on the FDIC's Deposit Insurance Fund. In addition, a TAG extension could increase moral hazard by neutralizing market mechanisms that penalize the banking system for taking on additional risk. A TAG extension could take multiple forms, ranging from a permanent extension to a temporary, voluntary extension with a short phase-out period.
On November 26, 2012, Senator Harry Reid introduced S. 3637, a bill to temporarily extend the TAG program for two years.