The House passes the rescue plan or bailout bill today and President Bush swiftly signed it into law.  It not only provides up to $700 billion to buy up toxic assets, but temporarily raises the limit on FDIC insurance to $250,000 per person per institution.  The increased insurance coverage expires on 12/31/2009 although if I were a betting man, I'd put money on the fact that we'll never go back to $100,000.

There are many questions about this increased coverage.  If I open a 5 year CD that is currently covered up to $250,000, what happens after 12/31/2009?  Does the coverage then go back to $100,000?  That means you shouldn't put more than $100,000 into any term longer than 1 year?  I tried calling the FDIC and although was told they are open until 10 pm Monday through Friday received a message that they were now closed.  That's a good move, closing early on one of the most significant days in their history.

When I get in touch with them I'll be sure to post what I discover.

Here's the statement from the FDIC website:

"FDIC Chairman Sheila C. Bair said, “The enactment of this legislation should ease fears among the public and financial institutions that have created uncertainty and disruption in the credit markets. As mandated by the statute, the FDIC will consult closely with the Treasury Department on the implementation of this new law.

"I am particularly pleased that the bill includes provisions for loan guarantees and credit enhancements on whole loans. This authority has the potential to permit innovative efforts to facilitate loan modifications and avoid unnecessary foreclosures. It has the ability to create incentives to leverage the private sector with minimal initial cash outlays.

"Temporarily raising the deposit insurance limits should address public confidence issues and provide additional liquidity to banks. As always, any potential borrowings from Treasury to support this additional coverage would need to be paid back from the FDIC’s traditional funding mechanism – industry assessments."

The downside to this increase is that the bill decreased the the pressure on banks to retain and attract new deposits.  Without this pressure look for lower rates on savings accounts and cds.  I predict a wave of rate cutting next week as banks take advantage of the bailout and the $250K increase in insurance.  Throw in a high probability of a Fed rate sometime in the next couple of months and you have the perfect storm for a drop.  Just what the Dr. ordered for savers.