The head of the US government’s bank insurance agency on Tuesday called for a temporary increase in the US$100,000 limit for insured bank deposits to help stabilize the fragile sector.
“Unfortunately, there is an increasing crisis of confidence that is feeding unnecessary fear in the marketplace,” Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair said.
“To address this crisis of confidence, I do believe that it would be helpful for the FDIC to have the temporary ability to raise deposit insurance limits,” Bair said.
“This would provide the dual benefits of providing additional liquidity to banks for lending as well as provide some additional reassurance to depositors above the current limits,” she said.
Some analysts fear the limit of US$100,000 for insured deposits might prompt a run by some businesses or institutional investors that might destabilize troubled banks.
The government recently offered insurance for money market funds without a limit, which could also lead to funds flowing out of banks and into those vehicles.
Bair said that “a temporary broadening of the FDIC’s guarantee will provide some additional needed confidence to the marketplace.”
US presidential candidates John McCain and Barack Obama had also suggested boosting the limits.
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