Senate Republicans defied the bank lobby earlier this month, killing a bank subsidy. You could credit a newfound free-market populism in the GOP's Tea Party wing, but old-fashioned partisan animosity and competing special-interest lobbyists played a bigger role.

The death of the Transaction Account Guarantee, or TAG, didn't make many waves outside the financial industry, but it could be an example for killing other special-interest subsidy programs.

Congress created TAG during the financial panic of 2008. The program gives a taxpayer guarantee to all deposits, above and beyond Federal Deposit Insurance Corp. insurance, which covers deposits up to $250,000. The 2010 Dodd-Frank financial regulation bill, which Obama praised as a broadside to the banks, extended TAG through 2012. The banks and Senate Majority Leader Harry Reid wanted to extend the program for another two years.

Here's how they lost:

First, the parliamentary spats: Reid, a champion of the subsidy, had earned the ire of Republicans with his usual heavy-handed management of the Senate. Amid Democratic and media complaints about Senate Minority Leader Mitch McConnell's aggressive use of the filibuster, the GOP leadership decided not to filibuster this measure: The cloture motion passed.

Reid rewarded this Republican accommodation with a stick in the eye. He pulled a strategic maneuver that blocked all amendments. Tennessee Republican Sen. Bob Corker, for instance, wanted to require banks to pay premiums for their TAG insurance, as they do for their FDIC insurance. Reid wouldn't allow it.

Republicans responded with their own parliamentary move: a point of order, objecting that the bill violated the Budget Control Act. Democrats needed 60 votes to waive the act. They got only 50. The bill died.

Even more important than the parliamentary grudge matches was special-interest lobbying.

The bank lobby -- no surprise -- wanted to extend TAG. In September, the American Bankers Association and the Independent Community Bankers of America wrote Congress asking for a two-year extension. "While policy makers had expected the economy to be on solid footing by year-end 2012 when Congress extended the TAG program in 2010," the letter states, "the fact is that the economy is still fragile."

Throughout the winter, the Community Bankers led the push, and Democratic congressional leaders were vocal about extension, too. Barney Frank and Maxine Waters, the top two Democrats on the House Financial Services Committee, signed a letter along with Minority Whip Steny Hoyer advocating TAG's extension.

Typically, the banks win this sort of fight because of a phenomenon economists call "concentrated benefits with diffuse costs." The banks acutely benefit from having a taxpayer backstop. Taxpayers, on the other hand, suffer only a tiny bit. So far, TAG hasn't paid out any money, and when it eventually does, the per-taxpayer cost will be small. Imagine some banks fail, and taxpayers have to make depositors whole, forking over $3 billion. That would be $20 per tax filer. That's annoying, but it's not worth your time to lobby against it.

This is a problem for believers in free enterprise -- the free market provides wide benefits, while mandates and handouts provide concentrated benefits. But TAG showed a way the free-market side can win: Find some special interests who suffer acutely from corporate welfare.

Mutual fund companies don't like TAG. Fidelity and its ilk lose business when checking accounts have an unlimited taxpayer backstop. So mutual funds lobbied to kill TAG.

Credit unions also helped kill TAG. They see community banks as their rivals, both on Main Street and on Capitol Hill. Community banks recently lobbied for regulations keeping credit unions from making more business loans. So some credit unions returned the favor, lobbying to kill the community banks' TAG subsidy.

This is a pattern. Whenever special-interest boondoggles encounter serious resistance, it's usually because some other special interest acutely suffered from it.

Why did Chesapeake Energy and T. Boone Pickens fail in their fight for federal subsidies of natural gas cars? Because other businesses that use natural gas -- notably Koch Industries, which makes fertilizer -- didn't want the higher prices that subsidized natural gas cars would cause.

Why did Boeing have trouble trying to renew the Export-Import Bank, which mostly subsidizes Boeing exports? Because U.S. airlines didn't like taxpayer subsidies for every foreign airline that buys Boeing.

Successful lobbying efforts in D.C. pit a special interest against the consumer or taxpayer who will get the bill. TAG shows what it takes to beat the special interests: more special interests.

Timothy P.Carney, The Examiner's senior political columnist, can be contacted at His column appears Monday and Thursday, and his stories and blog posts appear on