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Extension of FDIC's $250,000 Deposit Insurance Limit Gets Closer - May Not Become Permanent


On Wednesday the Senate passed the bill S.896 to prevent mortgage foreclosures and enhance mortgage credit availability. One of the provisions of this bill is the extension of the FDIC's $250,000 deposit insurance limit. According to this AFP article, the bill extends the limit through 2013. So it appears the $250,000 limit may not be made permanent. I tried to find exactly what the bill states at the Library of Congress Thomas Database. Here's the summary page of S.896. The only mention I could find of the FDIC was in the "All Information" section which had the following:
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).

Amends the FDIA to: (1) extend to eight years the time period applicable to a Deposit Insurance Fund (DIF) restoration plan; and (2) revise requirements for special assessments to recover the loss to the DIF arising from actions taken to contain systemic risk with respect to certain insured depository institutions.

From the bill it appears the increase would be permanent. I don't know where 2013 came from. But the AFP isn't the only place that mentions a temporary extension. This American Bankers Association (ABA) statement also mentions that this extension is temporary. If you can find more details of this bill, please leave a comment.

Update: A reader found the latest version of the bill here. It does extend the $250K coverage limit to December 31, 2013.

The bill now goes to the House. It seems likely that the bill will become law. It had strong support in the Senate passing 91 to 5, and the ABA is for it.

History of the FDIC's $250,000 deposit insurance limit

This is now the fourth bill to contain this FDIC coverage limit change. 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. In late April, the measure was buried deep inside another bill, H.R. 1106, which primarily dealt with mortgages.

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. However, 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.

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Anonymous   |     |   Comment #1
The summary page you quoted refers to an old version of the bill. The version that passed the senate can be found here
and contains the following language in Section 204:

(a) Temporary increase in deposit insurance extended.—Section 136 of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5241) is amended—

(1) in subsection (a)—

(A) in paragraph (1), by striking “December 31, 2009” and inserting “December 31, 2013”;

(B) by striking paragraph (2);

(C) by redesignating paragraph (3) as paragraph (2); and

(D) in paragraph (2), as so redesignated, by striking “December 31, 2009” and inserting “December 31, 2013”; and

(2) in subsection (b)—

(A) in paragraph (1), by striking “December 31, 2009” and inserting “December 31, 2013”;

(B) by striking paragraph (2);

(C) by redesignating paragraph (3) as paragraph (2); and

(D) in paragraph (2), as so redesignated, by striking “December 31, 2009” and inserting “December 31, 2013”
Banking Guy
Banking Guy   |     |   Comment #2
Thanks. I've updated the post with this link.
Anonymous   |     |   Comment #3
There are several other amendments that are not listed on the web side, but 2 of them point to remove time table and make it permanent and one amendment is to cap it according to cost of living adjustments.

We will not know for sure until debates and committee meetings are over.
Anonymous   |     |   Comment #4
One heavy round of montary inflation and 250K in 2013 would be like 100K now. We would be back where we started. When it comes to your goverment, don't expect much. and you won't be dissapointed. Kudos to Ken for his hard work!!
Andy   |     |   Comment #5
Uncertainty and delay with this legislation is costing some of us money. I have several "ad-on" CD's that have beneficial interest rates. If enacted, a raising of the insurance limit would let me make more interest.

I agree with the previous comment, don't expect much from congress. They like to enact fixed limits so it gives them something to do and wrangle over later. Look at the fights that occur every few years over the minimum wage. They could just index it and forget about it, but that would be too easy.