FDIC Coverage To Get First Boost In 20 Years

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Legislation that would make the first changes to the Federal Deposit Insurance Corp. (FDIC) in 20 years continued to move forward last week with House Financial Institutions and Consumer Credit Subcommittee Chairman Spencer Bachus (R-AL) saying his committee has reached an agreement in principle with the Senate, which earlier had passed similar legislation. Bachus did not indicate whether the changes would also apply to the National Credit Union Share Insurance Fund (NCUSIF), but the House version of the bill did include parity for the NCUSIF. Both credit union trade groups have lobbied for such parity for the credit union fund.

Under the proposed agreement, a permanent system of inflation indexation would be put in place to protect the value of insured accounts, meaning the cap on the amount insured, currently at $100,000, would rise. The cumulative five-year inflation indexation will boost coverage in $10,000 increments for all accounts beginning in 2010.

The legislation would immediately increase coverage on retirement account coverage to $250,000, and provides further indexation for all components, including individual and municipal accounts.

If the legislation is enacted, it will bring about the end of the Bank Insurance Fund and the Savings Association Insurance Fund, two remnants from old FSLIC and the savings and loan industry crisis of the 1980s and merge both of those funds into the FDIC.

For some banks, there is good news. The fund would pay a premium dividend of 50% of the excess premiums beginning when the net worth of the fund exceeds 1.35% of the value of insured deposits.

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