• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • How the FDIC Cap Makes the Rescue More Effective

    Two stories in The New York Times today demonstrate why the increase in the level of deposits the FDIC can guarantee (from $100,000 to $250,000) will help address the spreading financial crisis. First, on the importance of small businesses to the U.S. economy:

    Small businesses in America — the 27 million companies employing fewer than 500 people and in most cases fewer than 20 people — account for half of the nation’s output. A downward swing, whether caused by expensive borrowing or pessimism, could weaken the economy and shrink employment. Small businesses employ 40 percent of the work force, the Census Bureau reports, and they outpace large companies in generating new jobs.

    Now the NYT explains how the increased FDIC limits help small businesses:

    Proponents say that the move should help calm the nerves of depositors and stabilize the banking industry. After the emergency takeovers of WaMu and the Wachovia Corporation, bankers have worried about customers withdrawing their money.

    Among the biggest beneficiaries will be retirees and small-business customers, who tend to have higher account balances. Raising the limit should help reassure depositors they do not need to withdraw their money at the first sign of trouble. It sharply reduces the risk of keeping more than $100,000 in the bank.

    “It will bring peace of mind of mind to grandmother and mom and dad,” said Cam Fine, the head of the Independent Community Bankers of America, an industry group that lobbied for the increase. “My bankers are getting numerous customers coming into their lobbies and saying, ‘is my money safe?’ ”

    But Mr. Fine acknowledged that potentially the biggest impact would be on small-business customers, which often must have more than $100,000 in cash to meet payroll requirements and other needs. If the insurance coverage is increased to $250,000, about 68 percent of all small-business deposits will be insured, according to Oliver Wyman data. Today, about 51 percent of small-business deposits are protected.

    Posted in Economics [slideshow_deploy]

    One Response to How the FDIC Cap Makes the Rescue More Effective

    1. Pingback: Morning Bell: Bailout’s Precedent Requires Vigilance | The Foundry: Conservative Policy News.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.