Bank Bill Loophole Extends $250,000 FDIC Coverage Retroactively To Failed Banks

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WASHINGTON – Thousands of depositors in failed banks such as IndyMac and Nevada’s Silver State Bank who lost millions upon the failure of their banks will reap the benefit of a little-noticed loophole in the newly passed bank reform bill that will make permanent the temporary increase in federal deposit insurance coverage to $250,000 per account.

That’s because the new law will extend the increased coverage limit back 10 months from the original effective date of Oct. 3, 2008 all the way to Jan. 1, 2008, meaning almost 10,000 depositors who had excess deposits (over the then-$100,000 insurance limit) in the banks that failed during that period are now eligible for the increased limits, according to the FDIC.

The retroactive increase in deposit insurance coverage will reduce the number of uninsured depositors from more than 10,000 to about 500 in the failed banks IndyMac, Silver State Bank, Hume Bank, ANB Financial, First Priority Bank and the Columbian Bank and Trust Co.

NCUA, which is being sued by members in the 2008 failure New London Security FCU over some $4 million of losses on excess deposits, said the retroactivity loophole does not cover credit unions or the NCUSIF.

There were at least 10 other credit union failures during those 10 months, including several big ones such as Cal State 9 CU, Sterlent CU and Kaiperm FCU, in which there were uninsured losses that exceeded the $100,000 NCUSIF coverage at the time.

The FDIC mailed checks for the retroactive coverage yesterday. The FDIC is subtracting any deposit insurance already paid to those depositors under the $100,000 level and any dividends paid out by the FDIC as receiver of the failed banks.

The bank reform bill, signed into law Wednesday by President Obama, makes the temporary increase to $250,000, due to expire Dec. 31, 2013, permanent. The new limit applies to shares covered by the National CU Share Insurance Fund, as well as the FDIC.


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