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Markets / Your Money

FDIC Wants to Increase Insurance Coverage

Banking: Agency suggests that the $100,000 deposit limit should be gauged to inflation.

April 06, 2001|From Associated Press

WASHINGTON — All banks should pay for deposit insurance according to their risk of failure, and the $100,000 limit on account coverage should be pegged to inflation, the Federal Deposit Insurance Corp. is recommending to Congress.

FDIC Chairwoman Donna Tanoue said Thursday the changes are needed now to protect the safety of the banking industry and keep credit flowing to Americans.

"If we do not begin now to change some of the rules that govern our deposit insurance system, it is likely to take a toll on the safety and soundness of the banking industry," Tanoue said.

That could happen, she warned, when a slumping economy brings bank and thrift losses that deplete the federal insurance funds.

Tanoue wants to end what she sees as a free ride for more than 900 banks and thrifts established in recent years that get the benefit of the insurance funds yet have never paid premiums.

About 9,100 banks and thrifts, or 92% of all insured institutions, currently pay no premiums. The two funds for banks and thrifts are now flush, with a total cushion of $42 billion. Current law prohibits the FDIC from collecting premiums from most institutions that have adequate capital and receive strong ratings from examiners.

The FDIC wants to replace that set-up with a system in which every bank and thrift would chip in, with insurance premiums based on risk. If the insurance funds grew above a certain level, banks and thrifts would receive rebates.

The agency also maintains that the $100,000 per-account limit on insurance coverage has been eroded by inflation to only half of what it was worth in 1980, and should be pegged to the consumer price index.

Federal Reserve Chairman Alan Greenspan has strongly opposed an increase in the coverage limit, which has been pushed by the banking industry.

Congress will have the ultimate say on the FDIC's suggestions.

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