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Permanent Increase of FDIC Deposit Insurance Coverage May Soon Become Law


The temporary FDIC $250K coverage limit may soon be made permanent, but it first has to pass the Senate. This measured is now in the legislation H.R. 1106 which was passed by the House of Representatives on 3/5/2009 and referred to the Senate on 3/11/09. Unfortunately, the measure was merged into a more controversial bill dealing with cramdowns, which allows bankruptcy judges to modify mortgages in certain bankruptcy cases. According to this WSJ article, the Senate is likely to vote on this legislation as early as next Tuesday, but it's expected not to pass. However, the Senate is expected to bring the bill forward without the cramdown provisions. In addition to making the $250K coverage limit permanent, the bill includes a new $100 billion Treasury line of credit for the FDIC to help keep the deposit insurance fund solvent. This will also help savers a little since it should reduce a special premium on banks that the FDIC was planning in order to cover the additional burdens on the deposit insurance fund.

So hopefully the $250K coverage limit will soon be made permanent. Here's the exact language of the measure as listed in section 204 of H.R. 1106. Note, it also includes the NCUA for credit unions.
Sec. 204) Amends the Federal Deposit Insurance Act (FDIA) and the Federal Credit Union Act (FCUA) to: (1) increase deposit insurance coverage permanently to $250,000; and (2) increase the borrowing authority of the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA).

This is at least the third bill to contain this measure. I first reported on H.R. 384 in January which like this current bill, the FDIC coverage change was part of a much larger bill. Then in March I reported on H.R. 786 which was a bill just for the FDIC coverage limit change.

The insurance limit change started in late September and early October 2008 after the first bailout bill failed to pass the House. A new version of the bill was written, and it included a temporary increase to the basic FDIC and NCUA deposit insurance from $100,000 to $250,000. This revised bailout bill passed Congress and was signed by President Bush on October 3, 2008. The deposit increase is only temporary, and is scheduled to end on December 31, 2009.

Before this $250K coverage took effect, it was possible extend insurance coverage way above $100K through revocable trust accounts, it's not as straightforward as staying under the basic limit. There's always the worry that a FDIC claims agent will find something wrong with how the revocable trusts are done which would reduce the coverage. When you're under the basic limit (currently $250K), there's much less doubt. To review some of these issues, refer to my post on extending FDIC/NCUA coverage.

To review the latest FDIC and NCUA rules for deposit insurance, please refer to my FDIC and NCUA deposit insurance post.

Note, if you have problems accessing the WSJ article, try Google News.

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Anonymous   |     |   Comment #1
Good news.
Anonymous   |     |   Comment #2
Thank you, Banking Guy! Dear Heaven I hope this passes. I have so little faith in the United States Congress doing the right thing. But I need this to pass so badly. It would simplify my life immensely, and remove a lot of doubt and worry as well.
Anonymous   |     |   Comment #3
Ensure your Senators know we want this measure passed.
Jim   |     |   Comment #4
In case you missed it, Mish had a very interesting post about the FDIC here. The bit about them ignoring the boost to $250k in their DIF calculations is especially interesting. Since that article is a couple of days old, it obviously isn't including today's three more bank failures.

Also, speaking of bills, please ask your Congressman to support H.R. 1207. Click here to see if your congressman has already signed up as a co-sponsor. The bill basically allows the GAO to give the Fed a proper audit so we can hopefully find out where all the money they are printing goes.
Anonymous   |     |   Comment #5
Whatever happened to linking the insurance rate to inflation, so that we never have to rely on Congress again to raise it?