People who think deposit insurance of $100,000 is not sufficient–and last summer, that included dozens of Chicago depositors in the failed Superior Bank FSB–may be encouraged that the U.S. House of Representatives passed a bill last week to raise the coverage limit to $130,000, then adjust it for inflation every five years.
But the proposal may not go any further, especially for the time being.
Under the plan, coverage of retirement savings accounts would climb to $260,000 from $100,000. The bill, sponsored by Rep. Spencer Bachus (R-Ala.), calls for coverage limits to rise nationwide within nine months of its enactment. The measure was overwhelmingly approved by a 408-18 vote.
The $100,000 limit has not been increased since 1980 and, adjusted for inflation, is now worth about $46,210 in 1980 dollars.
A similar bill, sponsored by Sen. Tim Johnson (D-S.D.), is awaiting action in the Senate, where there seems to be more opposition, particularly from the senior Republican on the Senate Banking Committee, Sen. Phil Gramm of Texas.
The committee chairman, Sen. Paul Sarbanes (D-Md.), has said the committee’s legislative focus following the Memorial Day recess will be on accounting and investor protection reform legislation. He has not scheduled any other legislative activities.
Attempts to increase deposit coverage also have drawn criticism from Federal Reserve Board Chairman Alan Greenspan, Treasury Secretary Paul O’Neill and the White House.
A policy statement last week from the White House Office of Management and Budget says the Bush administration “strongly opposes” raising deposit coverage limits. “The interests of depositors will not be served by an increase in deposit insurance coverage limits. The average saver would derive no financial benefit. … The small fraction of savers with substantial deposits may obtain as much coverage as desired at minimal inconvenience by placing deposits at multiple institutions.”
The administration also opposes the cost to the banking industry of lifting coverage limits.
Meanwhile, the Federal Deposit Insurance Corp. is facing a potential problem with capitalization in its Bank Insurance Fund. The fund, which insures commercial bank deposits, is currently capitalized at 1.26 percent of the banks’ insured deposits.
If that figure falls below 1.25 percent–which could happen with growing bank deposits or one major bank failure–the FDIC would have one year to recapitalize it. If it were not recapitalized by then, banks would have to pay 23 cents for every $100 they hold in insured deposits each year until the fund became fully capitalized again.
The Savings Association Insurance Fund, which insures thrift deposits, is in better condition. The funds would be merged under some proposals pending in Congress.
Bank notes: Prospect Heights-based consumer finance firm Household International Inc. last week named James Kauffman, former secretary of banking in Pennsylvania, its director of compliance for consumer lending. Household, which lends to people with spotty credit records, has been criticized lately by consumer groups and New York State Comptroller Carl McCall, who said Household needs to “take drastic steps to reform its predatory lending practices.” Household officials say they do not participate in predatory lending.
– The once-prestigious Merchants’ Exchange of St. Louis was reborn last week as a fully electronic exchange in Chicago, offering futures contracts on natural gas and light sweet crude oil. The exchange plans to roll out several other contracts over the next six weeks.