Raising Deposit Insurance May Save Bailout Package

Help for George Baileys could win over balky politicians
By Rob Quinn,  Newser Staff
Posted Oct 1, 2008 2:13 AM CDT
The FDIC was set up during the Great Depression to provide deposit insurance following a huge number of bank failures.   ((c) zieak)
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(Newser) – A plan to boost deposit insurance for bank accounts is gaining traction in Washington and could help rescue the rescue package, the Wall Street Journal reports. Community bankers have been pushing hard for a hike from the current $100,000 limit to $250,000. The move, which would also ease fears of consumers and small businesses, may win over wavering politicians looking for something in the package to help Main Street.

The increase, backed yesterday by both presidential candidates and the FDIC chairman, would be the first in nearly 20 years. Backers say it would be a crucial confidence-raiser, warding off runs on small banks. Opponents note that the FDIC is already stretched, and argue that increasing deposit insurance could increase irresponsibility. The plan is for a temporary raise in the limit. But once changed, it maybe politically impossible to reverse.