Raise in FDIC's $100,000 Limit Looks Less Likely
WASHINGTON -- Prospects for raising deposit-insurance limits sank yesterday when an influential senator invited the Bush administration to propose a law that would probably exclude such an increase.</br></br>Senate Banking Committee Chairman Richard Shelby (R., Ala.) asked the administration to submit a legislative proposal on overhauling the Federal Deposit Insurance Corp. The administration strongly opposes raising coverage from its current $100,000 per depositor per institution.</br></br>The move jeopardizes competing proposals, one that passed the House overwhelmingly last year and has been reintroduced by House Financial Services Committee Chairman Michael Oxley (R., Ohio) this year, and another sponsored by Sen. Tim Johnson (D., S.D.). Both would boost the limit to $130,000 and index coverage thereafter for inflation.</br></br>"Coverage increases pose a serious threat to taxpayers that could far outweigh the marginal benefits to depositors or the banking system," Mr. Shelby said after hearing testimony from the Treasury and the four federal banking regulators, including Federal Reserve Chairman Alan Greenspan.</br></br>Except for FDIC Chairman Donald Powell, all oppose increasing coverage limits, arguing it would encourage banks to lend recklessly with the taxpayer underwriting the risk. All, however, agree on giving the FDIC more freedom to charge insurance premiums on banks that currently don't pay any, tailor premium levels to a bank's riskiness, limit the tendency of premiums to fall in good times and rise in bad times, and merge the bank and thrift insurance funds.