(August 10) – “The Federal Deposit Insurance Corp. released a report on plans to update the banking-insurance program, including a controversial proposal to double a bank’s maximum coverage to $200,000 per depositor,” writes Nicholas Kulish in today’s Wall Street Journal.
“The paper spells out options for revamping the pricing system for deposit insurance and managing deposit-insurance funds, as well as boosting the coverage limits. The FDIC called for comments on the options, and said it plans to send proposals to Congress early next year.”
“FDIC Chairman Donna Tanoue said the real value of insured funds has been roughly halved by inflation since the coverage limit was raised to $100,000 in 1980. Nonetheless, there is strong opposition to the FDIC coverage-limit proposal, most notably from Federal Reserve Chairman Alan Greenspan and Treasury Secretary Lawrence Summers. During testimony before the Senate in June, Mr. Greenspan dismissed higher coverage limits as ‘increased subsidies to upper-income individuals.’ Ms. Tanoue argued the time is right to reform the deposit-insurance system, citing strong banking industry profits.”
“The banking industry favors the change. ‘Protecting the real value of federal deposit insurance is essential to both consumer confidence and the safety and soundness of our nation’s financial system,’ said Thomas J. Sheehan, president of the Independent Community Bankers.”
“The options paper contained one concrete recommendation: To merge the Savings Association Insurance Fund and the Bank Insurance Fund. The Savings Association Insurance Fund was created in the bailout after the savings and loan crisis, and, by statute, must be kept separate from the Bank Insurance Fund.”
“The options paper also discussed possible ways of instituting a system whereby premiums are more closely tied to risk, with banks that take more chances paying more into the Bank Insurance Fund.”