Bill Seeks to Limit Deposit Insurance to Two Accounts

House Banking Committee Chairman Henry B. Gonzalez (D-Tex.) on Thursday offered a deposit insurance reform plan that would limit government protection per person to $100,000 in savings and another $100,000 in a retirement account.

“The bill would prohibit paying off multimillion-dollar accounts that are now insured for institutional investors and professional investors of one kind or another,” Gonzalez said in a statement on the House floor. “Today, there are simply no effective limits on the amount of insured deposits and therefore no limits on the amount of taxpayer liability.”

Currently, the $100,000 coverage is passed through to each person enrolled in a pension plan that may have millions or hundreds of millions of dollars on deposit in a bank. And individuals can protect more than $100,000 by maintaining accounts at many different financial institutions, or by having joint accounts with spouses and children.

Gonzalez’ plan also would force banks to pay higher premiums to the federal deposit insurance fund for risky investment activities. “No more free rides for the high fliers,” the committee chairman said.

Gonzalez will be one of the major players in the congressional effort this year to reform the nation’s banking system, which has been under pressure because of shrinking profits and big portfolios of shaky real estate loans.

The Bush Administration will unveil its own wide-ranging proposal for reform later this month. The plan will call for elimination of the barriers that keep banks from full participation in the securities and insurance fields, and for dismantling of the remaining barriers against interstate banking.

It also will suggest limits on the availability of deposit insurance, but officials have not made decisions on precise numbers.