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The sudden outbreak and rapid spread of coronavirus (COVID-19) across countries has thrown the world into a frenzy. In the past few days, the World Health Organization has declared COVID-19 a global pandemic, the stock market reached lows it hasn’t seen in over 20 years and the President declared a National State of Emergency to combat coronavirus.
The Federal Reserve just cut rates close to zero, while also pumping more liquidity into the economy. While these are steps in the right direction from an economic point of view, there are lessons learned from the past that still hold promise in today’s very difficult environment.
Granted this is unchartered territory in many ways, but when our country was hit by the financial crisis in 2008, the FDIC implemented the Temporary Liquidity Guarantee Program (TLGP). Upon implementation the TAGP guaranteed in full all domestic noninterest-bearing transaction deposits, low-interest NOW accounts, and Interest on Lawyers Trust Accounts (IOLTAs) held at participating banks and thrifts through December 31, 2009.
Just as it was then, this is again critical now to ease people’s concerns about the safety and of their funds. This is the first pandemic our world has seen in some time, and the impacts we are seeing so far are larger than we could have anticipated. Naturally, people are concerned about their money. Adding additional assurance, even if temporary, will ease the crisis in confidence.
A lot of the reactions we are seeing are partially reality, while the rest is people’s perceptions of what the reality might be. Financial institutions have been subject to Dodd-Frank legislation that increased capital requirements to help boost the health of banks. Now, banks are better capitalized than they’ve ever been, and therefore, better prepared to handle any unanticipated economic events. Depositors should have confidence their savings are safe because their banks are well-capitalized and their deposits are insured by the FDIC.
Quelling people’s concerns with action by bringing back the temporary liquidity guarantee program, even if for a short time, will build more confidence amongst businesses and consumers and will keep Americans from making brash decisions. Now is the time to act.
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