WASHINGTON — House conferees finalizing the regulatory reform bill unexpectedly proposed Tuesday to add sweeping provisions that would greatly expand deposit insurance coverage, but it remained unclear if their Senate counterparts would accept the package.
House representatives are seeking to permanently extend the Transaction Account Guarantee Program, which provides unlimited deposit insurance for zero-interest checking accounts, and permanently increase the general coverage limit to $250,000. The House proposal would also give the Federal Deposit Insurance Corp. more flexibility to set risk-based premiums.
The proposal was a surprise as no such language exists in either the House or Senate reform bills.
Under conference rules, the 12 Senate members of the committee can vote to accept the House proposal to make it part of the final reform bill or make their own counter-proposal, which would then have be approved by their House colleagues. A vote by Senate representatives is expected later today.
The provisions would permanently extend the deposit insurance limit that Congress temporarily raised to $250,000 from $100,000 in 2008. Under current law, the limit is scheduled to return to $100,000 at the end of 2013.
"I think I was a kid when it was $100,000," said Rep. Luis Gutierrez (D-Ill.). "Things have changed since then. This is the moment we can give people what they need—that is the security of $250,000 [in coverage] and make sure there aren't runs on our banks later on."
Under the proposal, the higher coverage limit would also be applied retroactively to the beginning of 2008, which would cover depositors at banks that failed before the temporary increase was established in October. That change would benefit depositors at failed IndyMac Bank and five other institutions.
The House proposal would also greatly expand the TAG program, which was launched in 2008 and provides unlimited deposit insurance coverage for transaction accounts for small businesses. The program was originally meant to be voluntary, but the House proposal would make it mandatory for all banks. While TAG is scheduled to expire at yearend, the House proposal would make it permanent.
House members from both parties said the change makes sense.
"Very small businesses have been impacted by this extremely small limit, and during the crisis one of the few things that occurred was the idea that your float money - interbank money - would be fully covered, period," said Rep. Darrell Issa (R-Calif.), explaining why he supported the TAG extension. "I hope we all understand that for a small business, we really were remiss in not doing more much sooner to take care of these funds."