Senate bill increases FDIC insurance amount, eases bankers' concerns

McALLEN -- Local bankers said a U.S. Senate provision to increase the deposit amount the federal government insures would increase confidence in banks and mitigate the risk of a massive withdrawal of money.

The historic emergency bailout bill increases the minimum insurance coverage the Federal Deposit Insurance Corp. guarantees for deposits from $100,000 to $250,000, a temporary move that bankers said eases their concerns that consumer panic could lead to a run on the banks.

"That (increase) would probably tend to add more stability and hopefully confidence in the system," said A. Jabier Rodriguez, president of Pharr-based Lone Star National Bank.

The FDIC is an independent government agency created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. It receives no congressional appropriations, funded instead by premiums banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.

The agency has made good on every dollar covered since its inception; however, its insurance fund currently stands at $45.2 billion - its lowest level since 2003.

FDIC Chairman Sheila Bar said two weeks ago she hadn't ruled out the possibility of going to the U.S. Treasury for a short-term loan or a line of credit if more banks failed - just as Lehman Brothers had done - and if there were a depletion of the fund.

Not all deposits at local banks are covered, however. While more than 60 percent of the $14 billion held by banks based in the Rio Grande Valley is insured, some $8 billion in accounts that exceed the insured amount of $100,000 is not.

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Sean Gaffney covers business, the economy and general assignments for The Monitor. He can be reached at (956) 683-4434.