Savers who are frustrated with limits on federal deposit insurance could find temporary relief in the $700 billion financial rescue package pending on Capitol Hill.
Lawmakers are considering adding a provision to the bailout bill that would temporarily increase the federal deposit insurance limit to $250,000 from $100,000. On Tuesday, presidential nominees John McCain and Barack Obama spoke out in favor of the increase.
The basic $100,000 insurance limit for certificates of deposit, savings accounts and other bank deposits hasn't been changed since 1980. While there are other ways for customers to increase their coverage, such as setting up joint accounts, the Federal Deposit Insurance Corp. estimates that up to 37% of bank deposits are uninsured.
The proposal to raise the insurance limit comes at a time when bank failures are increasing, putting more account holders with uninsured deposits at risk. The FDIC has taken over 13 banks so far this year, and analysts are predicting many more failures before the economy turns around.
In a statement, FDIC Chairman Sheila Bair asked Congress to give the agency temporary authority to increase deposit insurance limits. Raising limits, she said, would help address "an increasing crisis of confidence that is feeding unnecessary fear in the marketplace."
"This would provide the dual benefits of providing additional liquidity to banks for lending as well as provide some additional reassurance to depositors above the current limits," she said.
Edward Yingling, president of the American Bankers Association, says a temporary increase would give lawmakers time to consider long-range changes to the deposit insurance program while limiting the impact on the FDIC's insurance fund. That fund, which is financed by premiums paid by banks, has been strained by the recent increase in bank failures.
In an appearance Tuesday on Fox and Friends, McCain said he recommended the deposit insurance increase to President Bush.
In a statement, Obama said current deposit limits are adequate for most families, but are insufficient for many small businesses.
Camden Fine, president of the Independent Community Bankers of America, agrees. A large percentage of uninsured deposits, he says, "are in payroll accounts, small-business operating funds, and miscellaneous small-business accounts."
But Bart Narter, a banking analyst for Celent, a financial-services consulting firm, characterizes the proposal as a "feel good" measure that's probably unnecessary. Bank customers can increase their coverage by opening accounts at multiple banks, he says. Increasing insurance limits, he adds, would put more pressure on the FDIC's insurance fund, which is "under quite enough pressure as it is."