Bringing in the FDIC to Bail Out the Bailout

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 everyday 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: The 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.”

Comments

[z28rgr8:]

Not really relavant to the cause of the mortgage failures. It wasn't people who have $100K in the bank that did not pay their mortgages and cause the financial mess we are in.

Politicians don't get, or don't want to admit, that this is not a bail out of wallstreet but rather the American people who have been hurt by other Americans who did not live up to their obligations and pay their debts. These low-lifes are costing the majority of honest Americans significant percentages of our life's savings because they have failed to pay back the debt they promised to repay.

The bailout/rescue plan needs to take steps to protect honest Americans and at the same time ensure that those who did not meet their obligations can never again get a loan! Regulation is needed to set lending standards. I don't want to hear in the future that some poor person, or population segment, is not able to achieve the American dream. They've proved they don't deserve it by not repaying their loans and now the rest of us are paying the price!

Call it what it is!

2008 Oct 01 08:56 AM

[Smarty_Pants:]

Hmmmm....the FDIC doesn't have enough money to cover everything now so let's raise the amount of stuff they have to cover. Anyone with even the tiniest amount of brainpower should see that this doesn't change anything in reality except to increase the amount of shortfall the FDIC will experience if everything falls apart.

It's obvious that this plan was devised by a government employee.

But, I repeat myself.

2008 Oct 01 11:06 AM

[poet1:]

read: great bank rush of 2008 ( on seeking alpha )

2008 Oct 01 11:13 AM

[THUMPHREY:]

If you want to blame the fringe individual investor verses the bankers who lacked a fiduciary conscience you can go right ahead....keep watching Fox news, you can continue your education. The average price for a foreclosed home was under $170K.....these people were losing their homes because of increasing costs for fuel, unemployment, etc, etc. as well as from those among them who were speculators.....some of them probably wore lapel pins as well....

2008 Oct 01 01:46 PM