FDIC May Raise Deposit Insurance Limits

The exchange and validation of financial data or ideas are common practices in many industries, and the banking industry is no exception. In fact, FDIC and federal government agencies routinely exchange or implement ideas, and sometimes even apply reforming measures to the system.

According to Reuters – the chairman of the House Financial Services Committee, Representative Barney Frank, a Massachusetts Democrat, has told lawmakers of his committee that Sheila Bair, the chairwoman of the FDIC, will soon request the authority to increase the deposit-insurance level beyond the current $100,000 limit.

The federal law provides depositors with insurance coverage of up to $100,000 per deposit account. A depositor can also have more than $100,000 at one insured bank or savings association and still be fully insured. In addition, the FDIC provides insurance coverage of up to $250,000 for certain retirement accounts.

The Federal Deposit Insurance Corporation is one of the major mechanisms responsible for the every-day functioning of the banking system and plays a pivotal role in protecting depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails.

Both Presidential nominees Barack Obama and John McCain, have proposed an increase in federal deposit insurance to $250,000 from $100,000 as a way to broaden support for the $700 billion Wall Street bailout bill rejected on Monday by the U.S. House of Representatives.

FDIC’s insurance fund stood at about $45.2 billion at the end of the second quarter of the current fiscal year. The $100,000 limit covers only 63% of deposits today.

Update: FDIC Chair, according to CNNMoney – has put out a statement asking U.S. Congress to increase the $100,000 limit per account that has been in place since 1980.

“Unfortunately, there is an increasing crisis of confidence that is feeding unnecessary fear in the marketplace,” Bair said. “To address this crisis of confidence, I do believe that it would be helpful for the FDIC to have the temporary ability to raise deposit insurance limits.”