Official: Limit on Deposit Insurance May Be Too High

The $100,000 ceiling for insuring deposits in banks and thrifts may be too high and may have contributed to staggering losses in the savings and loan industry, a top federal banking regulator said Tuesday.

“I think it ought to be looked at,” Federal Reserve Board Governor Martha Seger said in a speech to the National Law Institute, a group of banking and thrift lawyers.

The $100,000 insurance limit for each account is provided for deposits in banks by the Federal Deposit Insurance Corp. and for thrifts by the Federal Savings and Loan Insurance Corp, although FSLIC is now technically bankrupt.

Seger said that because the limit is so high some bankers who accepted large amounts of deposits may have invested them in risky ventures that led to insolvency for the bank or thrift and caused losses to the insurance funds.

The Council of Economic Advisers under then-President Ronald Reagan made a similar argument in January and said it may be necessary to lower the $100,000 limit to discourage thrifts from making risky investments.

But the idea was sharply criticized by members of Congress who received an assurance from Treasury Secretary Nicholas F. Brady that he would not recommend such a change.

The insurance limit was raised to $100,000 from $40,000 in 1980.