Tuesday, September 30, 2008

FDIC asks to boost deposit limits

The federal agency that guarantees bank deposits is asking Congress for temporary authority to raise the limit on the amount of money it insures for individual bank accounts.

Federal Deposit Insurance Corp. Chairman Shelia Bair put out a statement late Tuesday afternoon asking that Congress allow her agency to increase the $100,000 limit per account that has been in place since 1980.

"Unfortunately, there is an increasing crisis of confidence that is feeding unnecessary fear in the marketplace," Bair said. "To address this crisis of confidence, I do believe that it would be helpful for the FDIC to have the temporary ability to raise deposit insurance limits."

Bair did not say what she thought the new limit should be. FDIC spokesman Andrew Gray said simply, "We'll leave that to Congress."

In 2005, Congress approved having the deposit insurance limit pegged to inflation. But that annual increase won't start until 2011 under current law.

The FDIC's request comes less than a week after two of the nation's largest banking institutions essentially collapsed and as investors worry about more bank failures.

Washington Mutual, the nation's largest savings and loan, became the largest bank failure of all time Sept. 25. None its depositors lost any of their money though as the FDIC arranged a sale to JPMorgan Chase.

Monday Wachovia Corp., the nation's No. 4 bank holding company by assets, sold its banking assets to Citigroup for a fire sale price in a transaction brokered by the FDIC.

Raising the amount that the FDIC can insure could stem a potential run on deposits by bank customers, particularly businesses, who fear losing their money. The $100,000 limit protected as much as 82% of deposits in 1991 but only covers 63% of deposits today.

The idea of raising the limits had already drawn support earlier in the day from Democratic presidential candidate Barack Obama and his Republican rival, John McCain.


Source: FDIC

No comments: