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$250,000 FDIC deposit insurance – who’s paying for it?

140pxusfdicseal_svgAn unexpected piece (to me, anyway) of the recent bailout plan was raising the amount of FDIC insured deposits from $100,000 to $250,000.  This is the amount that is safe in the event the bank fails.

This is a good thing, right?

But then I go to wondering… who asked for this? And who is paying for this? I don’t yet have an answer for the first question, but yesterday I got the answer to the second question along with a fees change notice from Bank of America:

"FDIC Assessment: The FDIC has reinstated the deposit insurance fund premium which applies to all member banks. This is a reminder that we base our FDIC assessment on deposit insurance costs which may include federal deposit insurance corporation (FDIC), financing corporation (FICO) assessments and other charges provided by law.  Out FDIC assessment has increased.  The charge can be offset with an earnings credit on eligible collected balances.  The assessment is subject to change from time to time without additional notification."

So, in other words, you and I are paying for this extra benefit we did not ask for.  The $100,000 limit was working just fine for me with deposits well below that number.  This new change only benefits a minority of the population – rich people (partnerships and corporations were already covered up to $250k prior to this change).  But all of us are paying for it. 

So this got me back to my first question, "who asked for this increase?" The cynical side of me tells me the banks/FDIC have been looking for an excuse to raise this limit and the bad economy provides a convenient reason.  It’s a great way for the FDIC to increase their revenues dramatically overnight and for the banks to get extra security overnight.  How does this change help to "jump start" the economy anyway? 

Businesses have been using the economy as the reason for making all sorts of decisions that would be difficult otherwise, such as layoffs to clean out the "deadwood."  Is this change to the FDIC limits another example of a convenient excuse?  Or is this prudent financial policy?

This FDIC increase is supposed to be temporary until the end of 2009, but I will bet it will be extended indefinitely.

Your thoughts?

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