Financial Reform Committee Boosts FDIC Insurance From $100K to $250K

[babylonsister]

http://www.prospect.org/csnc/blogs/tapped_archive?month=06&year=2010&base_name=financial_reform_committee_ups

Financial Reform Committee Boosts FDIC Insurance.


At a meeting to merge the two financial reform bills currently before Congress, legislators agreed to permanently push the cap on FDIC deposit insurance from $100,000 to $250,000 and, more controversially, make the change retroactive for 8,700 customers whose banks failed in the weeks before Congress temporarily increased the limit as a confidence-building measure during the financial crisis.

Republicans denounced both changes, calling the retroactive move a bailout of "politically favored wealthy individuals." Republican staffers passed out talking points that argued "retroactively paying the uninsured deposits for a handful of wealthy depositors sets a bad precedent, increases moral hazard and undermines the discipline that well-functioning deposit insurance' provides the financial system."

Democratic Rep. Jane Harman, an advocate of the measure in the House, shot back:

These are not “politically favored wealthy individuals.” In California, a widow lost more than half of her late husband’s life insurance dividend. Another woman lost $63,000 of her disability insurance payment. A single mother who sold her home deposited a $360,000 check for safe keeping as she prepared to buy another house, two weeks before IndyMac collapsed.

These people were the victims, not the cause, of the banks’ collapse. Giving their depositors the same protection provided to all depositors just three months later is the right thing to do.”

Many of these banks' customers are California-based, and so even local Republicans like Rep.David Dreier and Darrell Issa are supporting the measure. The depositors have even organized themselves to lobby for the cap raise, often blaming IndyMac's poor management for their losses.

While this is certainly a win for local banks who like to see their assets insured by the government -- even at a time when the FDIC's deposit fund is deeply strained by bank failures -- this measure could be useful for some consumers and small businesses, and could encourage saving. The $100,000 cap hadn't been increased since 1980, and only in 2006 was it indexed to inflation; one compromise in this measure will keep the cap at $250,000 until it would have risen above that level under the inflation index.

-- Tim Fernholz