A proposal to increase federal insurance on bank deposits is winning broad support from Democrats, Republicans and both presidential candidates.
Depositors currently are covered by the FDIC for up to $100,000 per bank. The new measure, part of a revised bailout package scheduled to go before the U.S. Senate this evening, would increase the cap to $250,000.
Although some critics are calling the added feature “lipstick for the bailout pig,” the provision would be a big win for small banks across the country, which have been advocating the increase for years.
The banks are small, compared to the behemoths that have been falling in recent weeks, but their trade group, Independent Community Bankers of America, wields significant clout in Washington.
The group represents 8,000 banks across the country and has spent more than $2 million this year on lobbying. It also pays a couple of outside firms, including Washington law firm Akin Gump, to advance its interests. Among the Akin Gump lobbyists working for the bankers is former U.S. Rep. Vic Fazio.
As The New York Times reports today, Treasury Secretary Henry Paulson talked with members of the group last Tuesday. Later that day, the organization appealed to its members to hold citizen meetings to promote the bailout plan.
The hike in depositors’ insurance is crucial, organization president Camden R. Fine said.
“If we have learned one thing in the past several weeks, it is that we have a two-tiered banking system in this country,” he told the Times. “We have the too-big-to-fail banks and we have the smaller banks. You can’t have one class of depositors who are 100 percent protected and another class of depositors who face risk.”
Yet by increasing depositors’ protection, the federal government would assume takes on more liability. If the FDIC’s funds are depleted, it could borrow from the Treasury, meaning higher costs for taxpayers.
“They are trying to propose increasing the deposit insurance limit to buy a few votes,” former FDIC Chairman William Isaac told Bloomberg News. “This won’t solve the problem. They’re trying to do as little as possible to get the votes for a bad bill.”
Click here to sign up for the Muckety Newsletter
0 Comments
There are no comments yet, be the first by filling in the form below.
Leave a Comment