Byline: Joe Adler
WASHINGTON - Legislation to retroactively extend deposit insurance coverage of $250,000 per account at all banks that failed in 2008 is gaining ground, and could even be folded into the financial reform bill.
The measure is designed to help depositors of IndyMac Bank recover some of the money they lost when the Pasadena, Calif., thrift failed nearly two years ago.
The California lawmakers behind the bill - Reps. Jane Harman, a Democrat, and David Dreier, a Republican - have won the support of both House Financial Services Committee Chairman Barney Frank and the Federal Deposit Insurance Corp.
"It does provide more even treatment of insured deposits," FDIC Chairman Sheila Bair said in an interview. "There's some justification for it."
The $30 billion-asset company was the first large institution to collapse as a result of the crisis. Its failure, inJuly 2008, came three months before Congress temporarily extended the deposit insurance limit to $250,000 from $100,000 to ease depositor fears. (The higher limit is set to expire at yearend 2013.)
The Harman-Dreier bill, titled the Investor Deposit Yardstick - or InDY Act - would make that increase effective for all banks that were seized by the government after Jan. 1, 2008. In addition to IndyMac, the change would benefit the five other institutions with uninsured deposits that failed before October that year.
As the wave of bank failures has persisted, uninsured customers have routinely been covered by acquirers willing to assume all of a bank's deposits. But in early and mid-2008, when the crisis was just beginning, depositor losses were still somewhat common.
A coalition of former IndyMac customers pushing for coverage of their uninsured claims estimates 8,700 depositors of the failed thrift would benefit from the legislation.
"There were people who deposited money the day before the bank closed, and they were assured that their bank funds were safe," said Lisa Marshall, a flight instructor from Manhattan Beach spearheading the group, called IndyMac Depositors.
"When people sold a home and took all the equity from the home, they said, 'I need somewhere to put this check.' There are people who specifically sold a business and a home ... two weeks before, and then all of a sudden their net loss is $127,000."
Including the five other institutions that failed between January and October 2008 at which depositors took losses -ANB Financial in Bentonville, Ark., Columbian Bank and Trust in Topeka, Kan., First Priority Bank in Bradenton, Fla., Hume Bank in Missouri and Silver State Bank in Henderson, Nev. - the bill would provide an estimated $280 million in additional coverage from the Deposit Insurance Fund.
"The bill is about fairness and affording the same protections to those who suffered losses …