Proposed change in FDIC deposit insurance level is a positive step

In recent weeks there have been calls by several prominent newsmakers and economists to raise the level of FDIC insurance from $100,000 to $250,000. I truly believe that this move is a definite step in the right direction. Though our lawmakers seem to have been playing politics and not getting anything done during the current economic crisis I believe a passage of a bill that raises the FDIC limit on insured banking deposits sends a strong message to Americans that their money is safe.

Both Barack Obama and John McCain have said they fully support the move to raise the FDIC insurance level. Jim Cramer, host of Mad Money on CNBC, has been calling for such a move for several weeks and believes it could restore a lot of confidence in the banking system of the United States. Sheila Bair, who heads the FDIC, said that she fully supports such a move, at least on a temporary basis. It is unclear whether the increase to $250,000 would be a temporary move or whether the move would become permanent.

• How would this increase be paid for? It would be paid for by banks and thrifts paying higher premiums into the insurance fund.

How could this help consumer sentiment regarding the banking industry?

Quite frankly one of the largest problems our financial system has right now is that people are concerned that their money is not safe and they have begun pulling money out of their financial institutions. In the case of Washington Mutual, depositors pulling money out of their accounts was the straw that broke the camel's back and caused the bankruptcy of the massive banking firm. An increase in the insured deposit level will help Americans understand that the FDIC is fully prepared to insure that the money they deposit, so long as it is an FDIC approved bank, will be fully insured.

It is also important to remember that an increase like this will help small businesses significantly. While many individuals likely have less than $100,000 in their account, most small businesses have more than that. Small businesses have been much more at risk during recent bank failures than individuals, and this should help improve confidence among small business owners.

To me it seems that an increase in the FDIC deposit insured level is overdue. In fact the last time this level was increased was 1980. If we account for inflation since that time that would make $100,000 in 1980 worth about $266,000 today, which underscores the point that this move should be made.

Upping the insurance limit certainly isn't the solution to the current financial crisis, but I strongly believe that it is a positive step and one that American consumers should welcome.