Wednesday, October 01, 2008

Popular plan for higher FDIC limits came from community bankers, many of them rural

Rural banks are making their own contribution to easing the credit crisis, with a plan that has received widespread support from both Democrats and Republicans, both presidential candidates and the Bush administration, reports The New York Times.

The Independent Community Bankers of America have lobbied for an increase in the amount of deposits insured by the Federal Deposit Insurance Corporation. The banking association asked that limits on insured deposits be raised from $100,000 to $250,000. The move is aimed at increasing consumer confidence in the banking system and providing an additional safety net for small businesses, writes David Stout.

“If we have learned one thing in the past several weeks, it is that we have a two-tiered banking system in this country,” says Camden R. Fine, president of the ICBA. “We have the too-big-to-fail banks and we have the smaller banks. You can’t have one class of depositors who are 100 percent protected and another class of depositors who face risk.”

Opponents argue that the increase would increase premiums for banks and cost taxpayers additional money, since FDIC resources are already being strained by bank failures around the country. Experts say that the increasing insured limits from $40,000 to $100,000 in 1990 "encouraged reckless lending by savings and loan institutions and led to huge losses that ultimately cost the government more than $200 billion." The FDIC's current reserves are $45 billion. (Read more)

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