The Federal Reserve Board is engaging in a well-intentioned effort that is, sadly, still false science based on complex formulas unproven by rigorous validation.
Considering the cost of TAG and the alternative forms of insurance available, there is no economic reason to extend it. And when you guarantee transaction balances, you are really helping large banks.
Sales officers and pricing desks frequently misjudge customers' sensitivity to rates and overpay for deposits. Similarly, banks that underestimate duration leave money on the table.
The cycle of bank in organization, to community bank, to acquisition target, and back to bank in organization has been interrupted over the last three years with no apparent relief in sight.
There is no convincing evidence that eliminating the mortgage interest deduction now would free up capital for more productive investment. Nor would it necessarily achieve the goal of "fairness."
As a state regulator who witnessed firsthand the role the TAG program has played in ensuring financial stability, I encourage Congress to continue TAG for at least two years.
Money market mutual fund shares price at a dollar on a daily basis because the underlying assets are required to meet very stringent credit quality, liquidity and maturity requirements.
