Plan for the Worst, Hope for the Best

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December’s arrival brings with it tidings of uncertainty for Treasury professionals. The looming fiscal cliff and the December 31st expiration of the Transaction Account Guarantee (TAG) program bracket a variety of outcomes for tax policy, spending and deposit regulations that could have wide-ranging repercussions for businesses. One challenge we explored last month was the expiration of the TAG program and the corresponding credit migration of the underlying deposits. In that whitepaper, we discussed the possibility that the TAG program could be extended by Congress and, almost as if on cue, last week Senate Majority Leader Harry Reid introduced legislation for a two-year extension of the TAG program. While the bill is expected to be debated on the Senate floor over the next week, it faces challenging odds given robust Republican opposition, adding another dimension to the existing uncertainty surrounding the fiscal cliff.

We believe that it may be overly optimistic to place blind faith on the chances of a successful legislative compromise this month, and that Treasurers’ goals may be better served by hoping for the best while planning for the worst. It’s in this spirit that we are continuing our TAG research. This month, we explore the collateral implications of a potentially expiring TAG program, such as cross-concentration of bank names in money market funds and in corporate portfolios, as well as falling yields for money market funds. In this uncertain environment, understanding the repercussions of regulatory changes and proactively developing plans to address these changes will help ensure a smooth transition into 2013.

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Best Regards,

Ben Campbell
President & CEO

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