But a lobbying group for banks objected to the insurance plan, saying it could hurt the ability of its members to attract and keep depositors.
Money market mutual funds will be able to pay higher yields than banks and offer uncapped insurance, said Edward Yingling, chief executive of the American Bankers Assn.
"Today's action will undermine the role of banks during this current crisis and has the potential to have an extremely negative impact," Yingling said in a statement.
Bank accounts have long been covered by the Federal Deposit Insurance Corp., and that extra safety margin helps banks compete with money market mutual funds.
Fund firms on Friday kept scrambling to shore up portfolios and ease client jitters.
Legg Mason Inc. said it would make $630 million available to its funds to guard against losses, taking a hit against quarterly earnings. The Baltimore-based asset manager had already injected $2.2 billion into seven funds since November to cover potential losses on debt issued by so-called structured investment vehicles.
Most firms contacted declined to say whether they would opt for the federal insurance coverage, though analyst Crane said he "couldn't imagine anyone saying no." A Fidelity Investments spokesman called it "an interesting idea" that the firm was examining.
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josh.friedman@latimes.com
