Dedicated to Deposits: Deals, Data, and Discussion

Higher FDIC Insurance Limits Being Proposed by Presidential Candidates

POSTED ON BY

Both McCain and Obama have proposed that the basic FDIC insurance limits be increased from $100,000 to $250,000 as part of the effort to get more support for the $700 billion bailout package. As reported by the WSJ Washington Wire:
Obama argued that expanding the Federal Deposit Insurance Corp. guarantees of deposits will help small businesses meet payrolls and maintain liquidity. The $100,000 limit hasn't been lifted in 28 years, Obama said, and hasn't been adjusted for inflation. He said the proposal would "potentially broaden support for the legislation."

Another benefit of such a change in my opinion is that it could reduce bank runs. A bank run was one of the reasons cited by the OTS for closing WaMu last week. Some of the $16.7 billion of deposits withdrawn from WaMu before the closure may have been deposits that were over the insurance limits.

The FDIC has already made it easier to get coverage over $100K. Last Friday it simplified coverage rules for POD accounts. Unfortunately, the change doesn't cover all issues related to using POD accounts to increase FDIC coverage.


Related Posts

Comments
25 Comments.
Comment #1 by Frugal Frugalson (anonymous) posted on
Frugal Frugalson
I'm not really sure that this change would have a big impact on bank runs since many people 100% protected under the current FDIC insurance limits don't seem to understand that (link).

1
Comment #2 by marc (anonymous) posted on
marc
I think Frugal is right. Even though the FDIC goes to great lengths to minimize the hassle after a takeover, people still go to the trouble to move money out to a "safer" institution even when they are under the limit. I heard numerous people tell me I was crazy for opening a wamu CD at 5% even under the cap. And they really need to publicize that the interest accrued is paid out because that's such a common misconception.

I think the cap should be raised because the 100k mark makes people think that is the limit they should have in ANY bank and many won't even go over that amount at banks that have no chance at failing (or if they were to, there would be plenty of time to move money as you monitored their weakening)

But also that something should be done to limit the crazy rates that banks in trouble can pay because it hurts the "safe" banks that are not in danger by making them pay high rates for deposits to match these guys. And they might not want to do that which hurts lending since the "bad" banks are taking in deposits not to lend, but to just survive. A bank's soundness should give it benefit. Ironically, since many people seem to not feel safe enough under the FDIC limit, this soundness benefit might be realized by the well-capitalized banks, but for the wrong reason when people move a 50k account at wamu to bofa, for instance.

Disclaimer: I work for a "sound" bank. But I also put money in the "troubled" banks to get higher rates, since I know there is no downside.

1
Comment #3 by trinidon2k (anonymous) posted on
trinidon2k
As a counter point to Frugal and Marc, a family member of mine had +200k in WaMu and reduced his balance to around 95k when he saw that things weren't looking good in August. I know it's not the norm, but I'm just saying. I was always called crazy for opening a 5% CD...lol.

1
Comment #4 by Anonymous posted on
Anonymous
It should have been raised years ago.

Also, eliminate taxes on dividends earned in savings accounts. We need to encourage people to save and not rely on credit for every little thing.

1
Comment #5 by Frugal Frugalson (anonymous) posted on
Frugal Frugalson
anonymous, you are preaching to the choir my friend. :)

1
Comment #6 by Anonymous posted on
Anonymous
The insured amount should be, and should have BEEN, indexed to inflation. This should have been done YEARS ago. But it's a political football and a way to hold savers hostage to the political class. Just as in this example, they want to bail out their Wall Street buddies now. So they offer us this bone which is something that, again, is LONG overdue and should not come with a US$700B price tag. The entire thing is completely outrageous. Bush, Paulson, and certain prominent democrat members of Congress need to go to jail over this. It will not happen.

1
Comment #7 by Anonymous posted on
Anonymous
This change is long overdue. The proposal should be given urgent consideration and passed promptly.

1
Comment #8 by Anonymous posted on
Anonymous
The FDIC limit does not need to be increased. What a stupid idea. Just put your money in a different bank. Barack claims he wants to help the poor . How many so called poor people do you know that has 100000.00 cash in the bank. How many people do you know who is having their house repossed has 100000.00 in the bank. In the famous words of you know who " stupid is as stupid does". It is scarey to think he will be our leader for the next 4 years.

1
Comment #9 by Joey (anonymous) posted on
Joey
Hey Anonymous. T

he raise in the FDIC insurance amount is not to help people with deposits over 100k. Most of those people know when to move their money. It's to help banks remain solvent. And before you say we don't need to help banks, think about what banks do. They allow business to conduct business. Right now, banks are not willing to lend to businesses. Many businesses will be unable to make payroll if this problem continues, and that will definitely affect poor people who are strggling to pay their mortgage and living paycheck to paycheck.

Its a shame that we have to do this. But the alternative is worse, and really, we are all to blame. We American's have lived beyond their means for years. Now we all act suprised and angry at bankers who did the same thing.

Rather than blame our leaders or soon to be leaders, we should just be blaming ourselves.

1
Comment #10 by Anonymous posted on
Anonymous
This idea has been thrown around for a while now and I am all for it. They should make it even higher than $250k in my opinion. Its irritating to have to have so many accounts in various banks just to protect my money. What's the downside? I don't see one.

1
Comment #11 by Jay (anonymous) posted on
Jay
The only downside is when the bank fails, it will cost the FDIC more money.

The FDIC only covered 50% of money over $100,000 regarding IndyMac.

When the FDIC runs out of money, they go to the U.S. Treasury.

1
Comment #12 by Anonymous posted on
Anonymous
Obama comment is typical politician ploy. They all smart up after the fact and malice. If he knows any better, why he never proposed any meaningful bill in congress for the last 2 years. Give me a brake.
McCain proposed similar bill 5 years ago, but nobody listened in congress.
A president who ever will be, will not solve any problems as long as we have elected stupid congressmen (congresswomen) to represent us. I don't know about you guys, but I will vote against the incombants.

1
Comment #13 by Anonymous posted on
Anonymous
I just browsed throught some of the comments re (are I mentioned some days ago, that the FDIC very likey will raise insurabce from 100K to a likely 250K. I do find it simply amazing that some readers of this blog (whi ARE entitlked to their opinion) would see this as a negative proposal...saying "well just put the miney in another bank! Which planetr do to reside on.,..first placing mney in an FDIC CD is not some crazy thing...unless they, take the (no forgotten position) of HWB, who would had, had he had the votes ended social security and a large number of people whould now be a a VERY bad situation. Secondly, expecially these days, find a bank that pays reasonable APY's and is not on the verge of collapse is really no easy.

The 100K limit had been in effect for a really lone time, and is well overdue ...just in terms of inflation.

I trult find this opinion to be, well, incredible...especially in the situation whereby so0-call uninsurased muktual find modny market avvout are somehow insured in with noe limit per person.

Of well, I suppose this is what one can expect and, frankly, why the country finds it self so divided! Perhaps, our porention MRS. VP will "drill her way to an answer.

1
Comment #14 by Anonymous posted on
Anonymous
Who can we write to help this 250k thing along ?

1
Comment #15 by Anonymous posted on
Anonymous
my bank put pods in the title not POD but PODS , go figure I insisted they put in pod`s so they titled my account " John R. Smith PODS"
I hope if they fail this will work as i have 250K in this bank with 3 beneficiaries.Comments ? do you think i`m OK ?

1
Comment #16 by ShraZZy (anonymous) posted on
ShraZZy
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.

1
Comment #17 by O-Qua Tangin Wann (anonymous) posted on
O-Qua Tangin Wann
Re: PODS

You are covered even if there is that extra letter.

The FDIC is flexible when it comes to the title as long as there is something in the title to reflect that it is a revocable trust account. They will accept POD, ATF, ITF. The extra S letter will make no difference. Just make sure that the signature correctly lists the names of your beneficiaries.

~O-Qua Tangin Wann

1
Comment #18 by Anonymous posted on
Anonymous
Could'a Should'a locked with the 250K IRA limit but that would'a been too easy. When it comes to your goverment don't expect much and you won't be disapointed

1
Comment #19 by Anonymous posted on
Anonymous
Thank You ~O-Qua Tangin Wann, I hope we get this 250,000. insurance it sure would make things easier for us savers.
And thanks to bank guy for this great forum...

1
Comment #20 by Anonymous posted on
Anonymous
Is NCUA included in this proposed legislation?

1
Comment #21 by Anonymous posted on
Anonymous
No complaints about the FDIC going to US$250K. This is without question a good thing and long overdue. But if they leave the NCUA down at US$100K it will be very tough. We need BOTH at US$250K before we are in really good shape. I surely hope the CU lobbyists are working overtime right now. This is where they need to step up and earn their money.

1
Comment #22 by tuphat (anonymous) posted on
tuphat
The bill on which the Senate votes today temporarily raises the insurance limit to $250k, through 12/31/2009, for both FDIC and NCUA. See act section 136.

1
Comment #23 by tuphat (anonymous) posted on
tuphat
The bill also prevents FDIC and NCUA from collecting additional assessments from banks because of the increased limits. This should be viewed favorably by the banks and credit unions.

1
Comment #24 by Ade (anonymous) posted on
Ade
"But if they leave the NCUA down at US$100K it will be very tough."

About the above comment, NCUA does cover US$250K...(or is it only for IRAs?):

Ade

1
Comment #25 by O-Qua Tangin Wann (anonymous) posted on
O-Qua Tangin Wann
Ade,

Until the government's proposed insurance limit raise is signed into law, the NCUA solo account limit is $100,000. (Solo account of CDs, Savings, Checking, Money Market.)

After the law takes effect, the solo account limit will increase to $250,000 until the last day of 2009.

If no extension to the limit raise is granted on or before the last day of 2009, the limit will fall right back to $100,000.

You can still do trust and joint accounts with the NCUA to raise the limits.

~O-Qua Tangin Wann

1