Local bankers voice support for higher FDIC insurance cap w/ link to learn more about the FDIC and to the Emergency Economic Stabilization Act of 2008

By Derek Spellman

dspellman@joplinglobe.com

Several local bankers on Wednesday expressed support for a proposal that would raise the limit on federal deposit insurance for checking and savings accounts as part of a broader economic-rescue package that was advanced Wednesday night by the U.S. Senate.

The plan would raise the insurance limit to $250,000 from $100,000 and was among the Senate revisions to a House version of the bill that failed earlier this week. The Federal Deposit Insurance Corp. is an independent agency funded by premiums that banks pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.

FDIC Chairwoman Sheila Bair on Tuesday had asked Congress for temporary authority to raise the limit to allay a crisis of confidence. Bair said the overwhelming majority of banks remain sound, but that an increase in the cap would help ease a crisis of confidence in the banking system as well as encourage banks to begin more lending.

Locally, the news of the proposed increase in the insurance limit was welcomed by Alden Buerge, chairman and chief executive officer of First State Bank of Joplin.

Even before the turmoil on Wall Street, Buerge said, the Independent Community Bankers of America had requested an increase in the limit. The cap has been unchanged for the past 28 years and has not kept pace with inflation, he said.

Buerge also agreed that the higher cap would help reassure people who have worries about the economy.

“I think this provides a psychological boost,” he said.

Garry Denney, chairman and CEO of Southwest Missouri Bank, said the measure is “a very good one” and “very needed.”

Denney said an increase in the insurance limit would largely affect small businesses that have those larger accounts, although a lot of those small businesses also are family-owned. He said the overwhelming majority of banks, particularly hometown banks, are strong.

He said he thinks the impact of the proposed increase would be lesser here than in other parts of the country that have seen financial troubles, such as the West Coast.

Denney said he supports the proposal because of the intangible benefits it affords for the country as a whole. Principally, he said, it fosters a “confidence factor” in the financial system.

Fred Osborn, president of the Commerce Bank of Joplin, said part of the problem with public perception now is that all banks are getting lumped in with the ailing financial institutions that triggered the problem in the first place. Several local bankers have said such institutions, such as Bear Stearns, are not FDIC-insured and more resemble investment firms than banks.

Osborn said that as a banker, he thinks the proposed cap increase is a good idea, but he cautioned that some of the costs likely would come back on the banks if the higher cap became permanent. The FDIC is funded by the premiums that banks pay, and if the cap were raised, the FDIC would be required to have the reserves in place to insure accounts at the $250,000 level.