Sheila Blair, Chairman of the Federal Deposit Insurance Corporation has requested an increase in the FDIC's insurance limit from $100,000 to $250,000 in order to gain trust in the financial system.  This is a great idea.  Hopefully, it will make people feel comfortable about leaving their money in the bank and prevent a major run on banks.  I would think that it would also increase the amount of deposits in banks, since some investors might consider cashing out of riskier investments and put their money in the bank.  This could in turn free up additional money to make loans.

     I only see one problem: Having a secure level of funding.  The insurance fund currently has $45.2 billion in the event deposits are lost.  You could argue that this amount is inadequate in this economic environment, and is even more questionable considering the limit would more than double.  The FDIC's insurance fund needs to be increased in relation to the increase in the deposit limit.  If this is not done and a bank failure creates a large dent in the fund, the confidence of depositors will be eroded and our problems will be worse.  More money must be pumped into the insurance fund.

http://www.reuters.com/article/businessNews/idUSTRE48T7F920080930?feedType=RSS&feedName=businessNews&rpc=23&sp=true