FDIC Offers $250K Deposit Insurance
June 9th, 09In a letter sent to financial institutions on May 22, the Federal Deposit Insurance Corporation issued an extension on the temporary $250,000 increase on bank deposit insurance of up to four years.
The standard maximum insured amount was initially increased from $100,000 to $250,000 in fall of 2008 and was set to return to the previous number at the end of 2009. With the terms of the new FDIC extension, the increase, though still temporary, would be available until 2013.
This extension was a result of the so-called Helping Families Save Their Homes Act, a bill that was signed in to law back on May 20.
In an additional announcement, the FDIC would levy a special assessment amounting to five basis points for every FDIC-insured financial institution’s assets. This would be minus its Tier 1 capital and the assessment would take effect on June 30, 2009.
The FDIC assessment would be collected by September 30 and it will be used to strengthen the weakened deposit insurance fund. The goal would be to retain a high level of public confidence in the overall banking system.
According to FDIC Chairman Sheila Bair, the “Assessments are a significant expense, particularly during a financial crisis and recession when bank earnings are under pressure.”
Bair went on to say that, “We recognize that assessments reduce the funds that banks can lend in their communities to help revitalize the economy. On the other hand, deposit insurance provides a benefit for which banks have always paid.”
The FDIC is not funded by federal tax dollars. Rather its expenses are provided through the sales of premiums and assessments, which are paid by the financial institutions that receive coverage.
As previously stated, the assessment will be assessed against all assets except for the Tier 1 capital rather than domestic deposits. Additionally, the assessment will have a cap of 10 basis points, or 01%, of the bank’s domestic deposits.
