The UK, so far has said it will cover £50,000. What does that say about the UK governments confidence in the banking system?… Not much.

Desperate times call for desperate measures. The insured amount can always be reduced when the system calms down.

In my humble opinion this is nothing more than good, attack the government, tv time. Just like the “death tax” which only affects less than 5% of the country.

If everybody pulled out of stocks and bonds, to “wait it out,” they’d most definitely put most of their money in one of the few remaining mega banks. They’d then have scads of cash with which to make loans.

Liquidity crisis? Not any more.

The fact is that we’ve seen the periodic run on the bank during this crisis and a higher limit would have helped that from happening. Yes, the costs should be passed along to the banks, who will, in turn, pass it along to us in the form of lower interest rates paid on savings and higher debt costs. But I am happy to accept this minor cost increase even though I don’t have $100K in cash lying in a bank somewhere.

Finally, we must be careful when not indexing amounts for inflation. The AMT is one example of something that became grossly distorted over time.

Also, as someone else suggested, you could have different limits for personal accounts versus business accounts. I know small businesses have to distribute their cash across more than one account/bank. While this may seem like a simple thing to do, from an operational point of view, it’s cumbersome and inefficent.

But in 1995, which times were obviously much better than they are now, they reduced and even eliminated some of the premiums.

Taken from an article in a 1995 New York Times:

“Ricki Helfer, the chairman of the F.D.I.C., said premiums needed to be reduced because of the banking industry’s current health, the economy’s strength and the expectation of F.D.I.C. examiners that few banks would fail soon. Premiums will still be collected for some banks with risky business practices and less solid finances. Still, the income from premiums as a share of insured deposits will fall to the lowest level in the 62 years of Federal deposit insurance.”

This isn’t much different than the whole lending issue that got us here. Times were good, so let’s take advantage of it and take on more risk. Who cares about the future, things are good now!

Of course, the FDIC has also proposed a premium increase, but this was determined a while back even before there was any mention of increasing the limit to $250,000.

Funny how that works. When times were good and banks were making a ton of money, they reduce the premiums, and when times get tough and banks are losing money, they make things worse by increasing the premium.

Anyway, I’m all for increasing the limit because A) it should be higher factoring in inflation and helping business, and B) adding to consumer confidence. But I don’t like all of the pull money out of thin air just to make it look good tactics. If you’re going to put the taxpayer’s money at risk by adding more coverage, it should be backed by the appropriate funding to minimize the risk.

It’s all still just a small issue of a much larger problem, but I wish lawmakers would look ahead instead of just doing what seems good at the time. This goes for what went on 10-15 years ago and today.