WASHINGTON - The $100,000 ceiling on federal bank deposit insurance would rise to $130,000, and double that amount for retirement accounts, under a bill debated Wednesday in the House.
The legislation would raise maximum insurance coverage for deposits for the first time since 1980, when it was $40,000 per account. Retirement accounts such as IRAs and 401(k) plans would be insured up to $260,000. Proponents say the move is needed to keep pace with inflation and encourage more people to save. With inflation, $40,000 in 1980 would be worth nearly $94,000 today.
Republicans have pushed it through the House before, only to see it die in the Senate, where memories linger of taxpayers having to fork over $132 billion for the savings and loan bailout of the late 1980s and early 1990s.
The banking industry has lobbied for an increase in the program established during the Depression. Smaller community banks, especially, believe it would help them compete for deposits with bigger institutions.
"The savings of Americans should not be allowed to go unprotected," Rep. Pete Sessions, R-Texas, said on the House floor.
Critics, including Federal Reserve Chairman Alan Greenspan, complain that to protect the wealthy, a burden potentially bigger than that of the thrift bailout would be imposed on taxpayers.
The legislation would also would combine the federal bank insurance fund with the fund for savings and loans, with a view to creating a single, more diverse fund that would be less vulnerable to regional economic problems. The bill also would make changes in the way the Federal Deposit Insurance Corp. collects premiums from banks and thrifts.
About 9,000 banks and savings and loans - or more than 90 percent of all insured institutions - currently pay no premiums. Existing law prohibits the FDIC from collecting premiums from most institutions that have adequate capital and receive strong ratings from examiners.
The FDIC wants to replace that with a system in which every bank and thrift would chip in, with insurance premiums based on risk. If the insurance fund reserves fell below a certain level, premiums would be increased gradually. Banks and thrifts would get rebates upon the fund exceeding 1.25 percent of the deposits it insures.
The hang-up is the provision raising the $100,000 ceiling on coverage. The Bush administration supports the rest of the legislation but opposes an increase in the ceiling.
In the Senate, Banking Committee Chairman Richard Shelby, R-Ala., "has concerns that this may cause greater exposure to taxpayers," his spokesman Andrew Gray said Wednesday.
Since Depression-era barriers separating banks, investment firms and insurers were removed by law in 1999, big securities firms have been "sweeping" excess money from many customers' brokerage accounts into FDIC-insured deposit accounts at bank subsidiaries. The new accounts compete with traditional banks.
The bill is H.R. 1185.
On the Net:
Federal Deposit Insurance Corp.: http://www.fdic.gov
Federal Reserve Board: http://www.federalreserve.gov
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