Among the many sweeteners added to the $700 billion bailout passed by the Senate on Wednesday are higher insurance limits on bank and credit-union deposits.
Individual accounts are currently insured up to $100,000 per institution. The proposal would lift the individual limit to $250,000, a move supported by local bankers and business owners.
The legislation, which must now pass the House, calls for that higher limit until Dec. 31, 2009, but it could be extended.
Higher limits should persuade more people to keep their money deposited at banks rather than invested in government Treasurys, said Jon Lorenz, chief executive of Colorado Business Bank.
“Keeping the deposits in your local bank is critical to allowing those banks to continue extending credit and to provide new loans to business,” he said.
Lorenz supports the increase. He said he would be even happier if business accounts could get $1 million or more in protection.
“I go over the $100,000 limit regularly,” said Jim Noon, owner of Centennial Container. “Until this all happened, I never gave it much thought.”
Of the business owners he knows, Noon said, some have divided their deposits among banks to stay under the $100,000 limit. But most, like himself, took it for granted their banks would remain solvent.
If depositors are above the limit when a bank fails, they line up as creditors. Customers of failed thrift IndyMac are receiving about 50 cents on the dollar for deposits above the insured limit.
For business owners, a bank failure could mean not meeting payroll or defaulting on credit lines, Noon said.
The FDIC fund was worth $53 billion before the collapse of IndyMac and contained $45.2 billion at the end of the second quarter. Institutions pay premiums to support the fund and could face higher premiums if the new $250,000 limit becomes law.
If the crisis worsens and more banks fail, federal funds could be needed to bridge the gap.
John Dill, president and chief executive of the Credit Union Association of Colorado, said that if banks are granted higher limits, then credit unions should be too.
“We have no reason to believe if Congress is going to raise the FDIC limits that they won’t do the same for credit unions,” Dill said.
In 1980, the FDIC limits on individual nonretirement accounts were raised from $40,000 to $100,000.
Had that limit adjusted with inflation since then, coverage would now be at $266,000, according to an inflation calculator from the U.S. Department of Labor.
Deposit insurance for retirement accounts was adjusted in February 2006 from $100,000 to $250,000.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
