WASHINGTON (Reuters) - The Federal Deposit Insurance Corporation is seeking temporary unlimited borrowing authority from the Treasury Department, according to a copy of the final Senate bailout legislation on Wednesday.
In the bill, which is expected to be voted on by the Senate later Wednesday, the FDIC is seeking the borrowing authority through the end of 2009.
The FDIC currently insures up to $100,000 per depositor and up to $250,000 per individual retirement account at insured banks.
The increase would be a big boost for the FDIC’s ability to insure bank deposits and send a message of confidence to individuals and businesses thinking twice about leaving their money in their banks.
The agency has access to a total of $70 billion in short- and long-term lines of credit. It can also charge banks higher premiums.
The 451-page Senate bill would increase the amount of deposit insurance coverage to $250,000 through next year from the current $100,000 in a bid to reverse the deteriorating crisis of confidence in the marketplace.
The FDIC had asked for an unlimited cap on insurance limits but was rejected by lawmakers, according to sources familiar with the FDIC request.
White House spokesman Tony Fratto said the proposal to lift the cap was an “important” improvement that would benefit banks.
“It will have benefits for banks across the country. It will have benefits for credit unions across the country,” he said.
The Independent Community Bankers of America said it strongly supports the efforts by the FDIC to raise the limit and find ways to backstop regulators and the industry.
“We think it will be very helpful to community banks and will certainly increase the support for the bill in Congress,” Steve Verdier, ICBA senior vice president and director of congressional affairs, said.
Verdier said the community bankers group held a conference call on Wednesday with its members in different states to encourage them to call members of Congress and their staff to support the $700 billion financial rescue package.
According to the legislation, the FDIC may ask Treasury for “a loan or loans in the amount or amounts...without regard to the limitations on such borrowing.”
The bill also seeks similar requests for the National Credit Union Administration, the regulator of federal credit unions.
The U.S. House of Representatives is “likely” to vote on Friday on a latest version of the bailout package, a House Democratic aide said on Wednesday.
FDIC Chairman Sheila Bair said on Tuesday that raising the limit to $250,000 would serve a dual purpose. It would reassure depositors and provide more liquidity to banks for lending.
Democrat Barack Obama and Republican John McCain who are running for president support boosting the insurance limit to $250,000.
Banks pay into the Deposit Insurance Fund, which stood at about $45 billion at the end of June, but the legislation says they would not be assessed for the temporary increased amount.
So far this year 13 banks have failed, including IndyMac and Washington Mutual Inc, which was acquired by JPMorgan Chase & Co in a transaction that did not dent the insurance fund. More bank failures are expected.
Next week the FDIC is slated to hold an open meeting to propose a plan to replenish the fund. Bair has said that she expects the FDIC to raise premiums for banks that accept volatile deposits.
(Additional reporting by Tabassum Zakaria and Richard Cowan)
Reporting by John Poirier; Editing by Andrea Ricci