Local bankers welcome proposed FDIC insurance limit increase
Bankers in Minnesota are welcoming the proposal to temporarily raise the ceiling on deposits guaranteed by the FDIC, the Federal Deposit Insurance Corporation. The limit would jump from $100,000 to $250,000. The Senate passed the plan last night as part of the financial bailout package, but the measure still needs approval from the House to become law.
Despite enthusiasm for the legislation, area bankers do not expect the deposit plan will dramatically affect their businesses.
St. Paul, Minn. — The measure had support from organizations such as the Minnesota Bankers Association and the Independent Community Bankers of Minnesota. Some members of those groups see the plan to boost the amount of deposit insurance as a way to extend the benefits of the big federal revitalization plan beyond Wall Street firms.
Rick Beeson, the president and chief executive officer of Park Midway Bank, shares that view.
"I think it balances out the resources that are given to Wall Street and putting something back on Main Street," Beeson said.
In Beeson's case, "Mainstreet' is actually Como Avenue in St. Paul, where his bank does a brisk morning business.
An FDIC spokesman said currently about 63 percent of domestic deposits are insured. With this change, the FDIC estimates that number would be 73 percent.
Beeson said only a small percentage of his customers would be affected by the change.
"I would say maybe five percent of our customers are going to be over that $100,000 level," Beeson said. "It allows people who would rather have money at one bank to consolidate it and simplify that and have it all under one umbrella."
For most banks, it's largely retirees and small business owners who would be in that situation. But Beeson thinks there will be a significant impact on other customers' peace of mind, too. He said the bank has fielded several queries over the past few weeks about the safety of deposits, given recent high profile failures of institutions like Washington Mutual and Wachovia.
"I wanted to check into a deposit I made into my savings," said Shelly Holl.
Shelly Holl is one of the Park Midway customers who has made recent inquiries. She said she's not so flush with cash that the deposit insurance increase would affect her. But, she thinks the measure is good for assuring the public about the stability of banks. She got her own assurances on a recent trip here, when she learned that the bank isn't exposed to toxic home mortgages.
"I came in and I talked to my banker and I was really comforted by what I had heard," Holl said. "It's a solid bank and one that I've worked with for a long time. So I'm comfortable."
Historically banks have been safe places to keep money. That's a message that Shawn Jacobson, president of the Financial Planning Association of Minnesota regularly conveys to his clients. He said the federal deposit insurance increase will lend weight to that message.
"As an investment professional, we look at investments on a spectrum, government bonds and bank CDs as the safest investments you can have," Jacobson said. "If savers lose confidence in that, your bedrock is shaken."
Despite their safety, banks have been losing market share to money market mutual funds, which typically have higher returns. Some observers have speculated that the deposit plan could help shift some of that market share back to banks.
Marshall MacKay, president and CEO of the Independent Community Bankers of Minnesota, said he could see some deposits migrating to community banks, but he doesn't expect the boost to be substantial.
"On behalf of community banks everywhere, I would hope that would be the case," MacKay said. "But in the long term the economics and the market dynamics don't necessarily make that the final outcome."
But, if the deposit insurance plan did attract more liquidity into the banking system, Jon Arfstrom of RBC Capital Markets in Minneapolis said that would be a very good thing.
"At the end of the day the bank, the community bank, is the company that's lending money to the local small business that employs people that generates tax revenue and it's very important from a public policy perspective to keep banks healthy," Arfstrom said.
The deposit plan is temporary, it would expire in 2009. Still, it would be the first time the limit has gone up since the 1980s. And, it would impose steeper costs for banks in the form of higher insurance premiums. The FDIC is planning to raise premiums for member banks, charging higher rates to the riskier banks among them.
- All Things Considered, 10/02/2008, 5:19 p.m.