Concerns Over Increase In Deposit Insurance Cap

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Passage by the House of a bill that would boost the deposit insurance cap has some in credit unions concerned.

In late April The House Financial Services Committee passed the Federal Deposit Insurance Reform Act of 2005, which would raise deposit insurance-including accounts insured by the National Credit Union Share Insurance Fund-to $130,000 per account from the current $100,000. The bill passed the full House last week.

But Dave Chatfield, president and CEO of the California/Nevada leagues, said an increase could have unintended consequences.

"There has been a fair amount of discussion as to whether raising the cap is a good idea. For those between $100,000 and $130,000, the extra protection is fine, but it doesn't provide much value to those who really need it," he told The Credit Union Journal. "It does not benefit the vast majority of savers."

More importantly, he continued, raising the amount that is insured might make depositors look past the way a financial institution is managed.

"Some people, and [Federal Reserve Chairman Alan] Greenspan is among them, think it should be lowered, not raised, to make people pay close attention to how a bank is run. History shows, it is more of an issue with banks than it ever would be with credit unions. We haven't had any credit union bailouts, but there sure have been bank bailouts and s&l bailouts. And Americans are still paying for those."

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