FDIC Insurance Limits May Be Permanently Raised to $250,000 by Congress

The House, as part of the second installment on the $700 billion TARP, is considering permanently raising the FDIC limit to $250,000. It will also consider raising the amount the FDIC can borrow from the Treasury from $30 billion to $100 billion. All good news for depositors.

Last year, regulators shut 25 banks. While the number of banks closed was relatively small compared to the S&L crisis in the 1980s, the asset values of those banks dwarfed past banking crisis. This has put pressure on the FDIC and depleted nearly $11 billion of the FDIC reserves and leaving $34 billion as of September 2008 according to a Bloomberg article. There is no doubt there will be additional bank failures and more money will be needed.

Despite FDIC insurance levels being raised to $250,000 through December 31, 2009, a CNBC/Portfolio.com survey found that 35% of consumers are not confident their money would be safe if their bank failed. Consumers are nervous although the FDIC has responded quickly and decisively to every banking crisis so far. In most cases depositors have received their FDIC covered money within two days of the bank failure.

But it's about time the FDIC insurance limit was raised from $100,000 to $250,000. The limit was set to $100,000 in 1980. With inflation, the coverage has eroded significantly over the last 30 years, at a time when we can least afford it.