FDIC hopes to raise deposit limits

Nancy Marshall-Genzer Sep 30, 2008
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FDIC hopes to raise deposit limits

Nancy Marshall-Genzer Sep 30, 2008
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There was a rare moment of agreement between Barack Obama and John McCain today. Both presidential candidates came out in support of higher limits on federal insurance for bank accounts. A couple of hours later, so did the head of the agency that runs that insurance program — Sheila Bair of the FDIC. Bair didn’t specify how high she’d like to raise the limit. The amount that’s being bandied about is an increase from $100,000 to $250,000.

Marketplace’s Nancy Marshall Genzer has more.


Nancy Marshall Genzer: If the FDIC insures deposits over $100,000, more money is apt to stay right where banks want it — in their vaults. Walter Gerasimowicz heads up Meditron Asset Management, which manages big investors’ money.

Walter Gerasimowicz: We have a silent bank run going on right now. People are withdrawing assets from banks galore to make sure they’re under the $100,000 limit.

Businesses would also like the higher cap. It’s a pain for them to split up their money into smaller, insured accounts. University of Wyoming banking professor Sherrill Shaffer says businesses like car dealerships need a lot of cash on hand to meet payroll and buy inventory.

Sherrill Shaffer: And typically, there would not be a particularly convenient way to split that up and still have access to the money for their normal, day-to-day cash flow needs.

Right now, a little less than two-thirds of all U.S. bank accounts are FDIC insured. The FDIC would insure a lot more money under a higher cap. It would need more cash to do that. Banks fund the FDIC through a type of insurance premium. Their premiums would go up, and they’d probably pass the higher fees onto consumers. But should we worry about the FDIC running out of money? No, says Princeton economist Alan Blinder.

Alan Blinder: The FDIC is sort of standing there now like the rock of Gibralter as the only thing people trust. They should trust the FDIC. If it runs through the money it now has, it will get more.

Where? From its favorite uncle, of course, Uncle Sam.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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