TAG’s Potential Impact

1 min read

Since 2008, the cash markets have been positively impacted by a massive regulatory overhaul and supported through a multitude of government programs that led to credit generation and stability in the markets. Investors reacted positively to these programs, sifting through a variety of new choices that now offered government guarantees of principal and interest on previously unsupported credits. Over the years, many of the programs expired uneventfully against a backdrop of stable credit markets. Now, all eyes are on the year-end expiration of the Transaction Account Guarantee (TAG) program which has the potential to generate an investment shift of well over a trillion dollars if depositors revert back to pre-TAG investment channels. This shift could return bank deposit investments to their pre-crisis levels of 25% of corporate cash, compared to the 51% they comprise today, as tracked by AFP’s annual liquidity surveys from 2006-2012.

As one prepares for bank exposure to once again be bank exposure, an analysis of collateral challenges of these potential flows is interesting. A survey of 242 corporations conducted earlier this year by Capital Advisors Group and Strategic Treasurer showed 31% of the respondents anticipate reducing their exposure to bank deposits (DDA, Sweep, MMDA) when the TAG program expires. This potential shift may be supported by the overall lower credit quality in the finance sector as many bank ratings have been downgraded by several notches over the past year. So, with this year-end potentially bringing a trillion dollar shift in investor preferences, I thought this month we would share our insight into the collateral impact the TAG expiration may have on the cash investment world.

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Best Regards,

Ben Campbell
President & CEO

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