House Raises Retirement Insurance Limit

WASHINGTON – The House overwhelmingly approved a measure Wednesday raising the $100,000 ceiling on federal bank deposit insurance (search) to $130,000, and to double that amount for retirement accounts.

The vote was 413-10 for legislation that would raise maximum insurance coverage for deposits for the first time since 1980, when it was $40,000 per account. Retirement accounts such as IRAs and 401(k) plans (search) would be insured up to $260,000. Proponents say the move is needed to keep pace with inflation and encourage more people to save. With inflation (search), $40,000 in 1980 would be worth nearly $94,000 today.

Republicans have pushed the bill through the House before, only to see it die in the Senate, where memories linger of taxpayers having to fork over $132 billion for the savings and loan bailout of the late 1980s and early 1990s.

The banking industry has lobbied for an increase in the program established during the Depression. Smaller community banks, especially, believe it would help them compete for deposits with bigger institutions.

"The savings of Americans should not be allowed to go unprotected," Rep. Pete Sessions, R-Texas, said on the House floor before the vote.

Critics, including Federal Reserve Chairman Alan Greenspan (search), complain that to protect the wealthy, a burden potentially bigger than that of the thrift bailout would be imposed on taxpayers.

The fact that Greenspan and other federal bank regulators oppose the insurance increase "is a very powerful message," said Rep. Carolyn Maloney, D-N.Y. Furthermore, she maintained, with an estimated 2 percent of bank accounts exceeding $100,000, the change would benefit few depositors.

The legislation also would require that the insurance coverage for deposit accounts, after being raised, be updated every five years to reflect inflation. It would combine the federal bank insurance fund with the fund for savings and loans, with a view to creating a single, more diverse fund that would be less vulnerable to regional economic problems. The bill also would change the way the Federal Deposit Insurance Corp. collects premiums from banks and thrifts.

About 9,000 banks and savings and loans -- or more than 90 percent of all insured institutions -- currently pay no premiums. Existing law prohibits the FDIC from collecting premiums from most institutions that have adequate capital and receive strong ratings from examiners.

The FDIC wants to replace that with a system in which every bank and thrift would chip in, with insurance premiums based on risk. If the insurance fund reserves fell below a certain level, premiums would be increased gradually. Banks and thrifts would get rebates upon the fund exceeding 1.25 percent of the deposits it insures.

The hang-up is the provision raising the $100,000 ceiling on coverage. The Bush administration supports the rest of the legislation but opposes an increase in the ceiling.

In the Senate, Banking Committee Chairman Richard Shelby, R-Ala., "has concerns that this may cause greater exposure to taxpayers," his spokesman Andrew Gray said Wednesday.

Since Depression-era barriers separating banks, investment firms and insurers were removed by law in 1999, big securities firms have been "sweeping" excess money from many customers' brokerage accounts into FDIC-insured deposit accounts at bank subsidiaries. The new accounts compete with traditional banks.

FDIC Chairman Donald Powell said after the vote that he was grateful the House had "made deposit insurance reform a priority by passing it early in the session and by such a wide margin."

"The FDIC will continue to work with the Senate to get a bill onto the president's desk so that it can become law," Powell said in a statement.

The 10 lawmakers voting against the bill were Jim Cooper, D-Tenn.; Jo Ann Davis, R-Va.; Peter DeFazio, D-Ore.; Jeff Flake, R-Ariz.; Ron Paul, R-Texas; Dana Rohrabacher, R-Calif.; Ed Royce, R-Calif.; Bernie Sanders, an independent from Vermont; Pete Stark, D-Calif., and Gene Taylor, D-Miss.