Obama and McCain: Increase FDIC guarantee

Senators Barack Obama and John McCain called this morning for increasing the amount of bank deposits insured by the federal government from $100,000 to $250,000.

Obama said the move would help small businesspeople who use bank accounts for the payrolls and other expenses.

“The majority of American families should rest assured that the deposits they have in our banks are safe," he said in a statement, offering his latest proposal to break the impasse over Wall Street bailout legislation. "Thanks to measures put in place during the Great Depression, deposits of up to $100,000 are guaranteed by the federal government.

“While that guarantee is more than adequate for most families, it is insufficient for many small businesses that maintain bank accounts to meet their payroll, buy their supplies, and invest in expanding and creating jobs. The current insurance limit of $100,000 was set 28 years ago and has not been adjusted for inflation.

“That is why today, I am proposing that we also raise the FDIC limit to $250,000 as part of the economic rescue package – a step that would boost small businesses, make our banking system more secure, and help restore public confidence in our financial system."

McCain said on CNN that he recommended to President Bush this morning that the limit on federally insured deposits be raised to $250,000.

He, along with Obama, said that Congress needs to pass a bailout package. "By the way, the first thing I'd do is say, 'Let's not call it a bailout. Let's call it a rescue.' Because it is a rescue. It's a rescue of Main Street America," McCain said.

While Obama was first out of the box today with FDIC idea, the GOP noted that House Republicans floated the idea during bailout negotiations over the weekend -- and it was rejected by Senate Democrats.

House Republican leader John Boehner said in a statement, "The presidential candidates' support for increasing the FDIC cap is welcome news. Increasing the FDIC cap is a proposal put on the table by Roy Blunt and House Republicans but ruled out by Democrats during the negotiations that led to yesterday's unsuccessful vote."

UPDATE: Bloomberg is reporting this afternoon that the FDIC will ask Congress for permission to increase deposit insurance limits.

"Sheila Bair, chairman of the FDIC, notified me that they will be requesting authority to increase deposit insurance limits. We will provide additional details as we have them,'' Representative Barney Frank of Massachusetts, chairman of the House Financial Services Committee, said in a memo to committee members.

The FDIC currently provides $100,000 of insurance for individual bank deposits. The memo didn't specify what new level was being requested by the agency.

Obama's full statement this morning is below.

“Yesterday, within the course of a few hours, the failure to pass the economic rescue plan in Washington led to the single largest decline of the stock market in two decades.

“While I, like others, am outraged that the reign of irresponsibility on Wall Street and in Washington has created the current crisis, I also know that continued inaction in the face of the gathering storm in our financial markets would be catastrophic for our economy and our families.

“At this moment, when the jobs, retirement savings, and economic security of all Americans hang in the balance, it is imperative that all of us – Democrats and Republicans alike – come together to meet this crisis.

“The bill rejected yesterday was a marked improvement over the original blank check proposed by the Bush Administration. It included restraints on CEO pay, protections for homeowners, strict oversight as to how the money is spent, and an assurance that taxpayers will recover their money once the economy recovers. Given the progress we have made, I believe we are unlikely to succeed if we start from scratch or reopen negotiations about the core elements of the agreement. But in order to pass this plan, we must do more.

“One step we could take to potentially broaden support for the legislation and shore up our economy would be to expand federal deposit insurance for families and small businesses across America who have invested their money in our banks.

“The majority of American families should rest assured that the deposits they have in our banks are safe. Thanks to measures put in place during the Great Depression, deposits of up to $100,000 are guaranteed by the federal government.

“While that guarantee is more than adequate for most families, it is insufficient for many small businesses that maintain bank accounts to meet their payroll, buy their supplies, and invest in expanding and creating jobs. The current insurance limit of $100,000 was set 28 years ago and has not been adjusted for inflation.

“That is why today, I am proposing that we also raise the FDIC limit to $250,000 as part of the economic rescue package – a step that would boost small businesses, make our banking system more secure, and help restore public confidence in our financial system.

“I will be talking to leaders and members of Congress later today to offer this idea and urge them to act without delay to pass a rescue plan.”