WASHINGTON (AP) – The $100,000 account limit on federal bank deposit insurance will be raised for retirement accounts under legislation passed by Congress on Wednesday and expected to be signed by President Bush.

The change, which the banking industry has been pushing for about a decade, was included in a $39 billion budget bill that narrowly cleared the House and sped toward the president’s desk.

It gives the Federal Deposit Insurance Corp. discretion to increase the $100,000 insurance ceiling on deposit accounts to reflect inflation, starting five years from now. For individual retirement accounts held in banks, the account limit will immediately be raised from $100,000 to $250,000.

“This legislation is good for depositors, the financial services industry, and the safety and soundness of the deposit insurance system,” FDIC Acting Chairman Martin Gruenberg said in a statement issued after the House vote.

The banking industry has lobbied for an increase in the program established during the Depression. Smaller community banks, especially, believe it would help them compete for deposits with bigger institutions and Wall Street investment firms.

After Hurricane Katrina hit the Gulf Coast, some lawmakers pushed a plan to raise the $100,000 limit immediately so that smaller banks in the affected areas wouldn’t be hurt by depositors pulling out their money.

The legislation raises maximum insurance coverage for accounts for the first time since 1980, when it was $40,000 per account. Proponents have said the move was needed to keep pace with inflation and encourage more people to save. Taking inflation into account, $40,000 in 1980 would be worth nearly $94,000 today.

Critics, including now-retired Federal Reserve Chairman Alan Greenspan, have maintained that to protect the wealthy, a burden potentially bigger than that of the savings and loan bailout – which cost taxpayers around $130 billion – would be imposed.

The legislation also:

-Combines the federal bank insurance fund with the fund for savings and loans, with an eye to creating a single, more diverse fund that would be less vulnerable to regional economic problems.

-Changes the way the FDIC collects premiums from banks and thrifts.

About 9,000 banks and savings and loans – or more than 90 percent of all insured institutions – pay no insurance premiums. The FDIC is prohibited from collecting premiums from most institutions that have adequate capital and receive strong ratings from examiners.

That will be replaced with a system in which every bank and thrift chips in, with insurance premiums based on risk. If the insurance fund reserves fell below a certain level, premiums would be increased gradually. Banks and thrifts would get rebates when the fund reached a certain level.

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On the Net:

Federal Deposit Insurance Corp.: http://www.fdic.gov

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