FDIC Temporary Increase In Deposit Insurance Extended

FDIC Deposit Insurance Increase Extended

The FDIC announced on May 21, 2009 that the temporary increase in deposit insurance has been extended.

On May 20, 2009, President Barack Obama signed the Helping Families Save Their Homes Act, which extends the temporary increase in the standard maximum deposit insurance amount (SMDIA) to $250,000 per depositor through December 31, 2013. This extension of the temporary $250,000 coverage limit became effective immediately upon the President’s signature. The legislation provides that the SMDIA will return to $100,000 on January 1, 2014.

On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except for IRAs and other certain retirement accounts which will remain at $250,000 per depositor. (This supersedes the October 3, 2008 changes.)

The new law is designed to restore confidence to depositors who hold balances at banks in excess of the previous $100,000 insurance limit.  Although the immediate banking crisis seems to have been contained, the Government did not want a repetition of the “silent run on the banks” which occurred last year as large depositors quickly withdrew funds from banks that appeared to be on the edge of insolvency.

The FDIC did not disclose how much more in deposits they will be insuring due to this move.  The FDIC, in its latest Quarterly Banking Profile as of December 31, 2008, states the the FDIC currently insures $4.7 trillion in deposits.   The $4.7 trillion in deposits is insured by the FDIC Deposit Insurance Fund (DIF) that contains less than $18 billion after the latest bank failures through May 22, 2009.

In addition, the Quarterly Banking Profile states that there are 252 banks that are considered to be “problem banks”  by the FDIC.  The 252 problem banks hold $159 billion in assets.

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