Who ends up paying for SVB, Signature and other bank failures?

The federal government’s response to the failure of Silicon Valley and Signature Banks already involves hundreds of billions of dollars, raising the question of who will ultimately pay for the bailouts.

It may take months before the answers are fully known.

The Biden administration said This will guarantee Uninsured deposits at both banks, while the Federal Reserve announced a new lending program for all banks that need to borrow money to make withdrawals. On Thursday, the Fed said banks borrowed about $300 billion in emergency funding last week, with about half going to holding companies for two banks that failed to pay depositors. The Fed did not say how many other banks borrowed money and added that it expected to repay the loans.

Still, while taxpayers today bear no direct costs for Silicon Valley and Signature’s failure, other banks may have to help pay the cost of covering uninsured deposits. Over time, those banks can pass on higher prices to customers, forcing everyone else to pay more for services.

Here are some questions and answers about the cost of bank failures:

How is the rescue being paid?

Federal regulators last week abruptly seized Silicon Valley Bank of California and Signature Bank of New York, leading to Fear among investors and customers of both companies. The collapse of these banks sent shockwaves throughout the banking industry. Pain for a handful of regional banks. President Biden and Treasury Secretary Janet Yellen spent much of this week trying to reassure Americans that the US banking system is safe.

The Federal Deposit Insurance Corp. would cover most of the cost with proceeds from liquidating the two banks. Any cost beyond that will be charged. FDIC’s Deposit Insurance Fund.

The FDIC, Fed and Treasury said in a joint statement that if necessary, the insurance fund would be replenished through a “special assessment” on the banks. While the cost of this assessment may ultimately be borne by bank customers, it is not clear how much it will involve.

Will taxpayers be on the hook?

President Biden has insisted that no taxpayer money will be used to solve the crisis. Treasury Secretary Janet Yellen defended the view Thursday under tough questions from GOP lawmakers.

The Fed’s lending program to help banks pay depositors is backed by $25 billion in taxpayer funds that will cover any losses on the loans. But the Fed said it was unlikely the money would be needed because the loans would be backed by Treasury bonds and other safe-haven securities.

Even if taxpayers aren’t directly on the hook, some economists said banks’ customers still benefit from government support.

“To say that the taxpayer will pay nothing ignores the fact that providing insurance to someone who has not paid for insurance is a gift,” said University of Chicago economics professor Anil Kashyap. ” “And so it happened.”

So is it a bailout?

Biden and other Democrats in Washington deny that their actions amount to a bailout.

“This is not a bailout like what happened in 2008,” Sen. Richard Blumenthal, a Connecticut Democrat, said this week in proposing legislation to tighten bank regulation. “This is, in fact, a protection for depositors and a precautionary measure to prevent a run on other banks across the country.”

Biden has stressed that the banks’ managers will be fired and their investors will not be protected. Both banks will cease to exist. In the 2008 crisis, some financial institutions that received government bailouts, such as insurer AIG, were saved from near-bankruptcy.

Yet many economists said Silicon Valley bank depositors, including wealthy venture capitalists and tech startups, are still receiving government support.

Many Republicans on Capitol Hill say small community banks and their customers will bear some of the cost.

Banks in rural Oklahoma “are going to pay a special fee to bail out millionaires in San Francisco,” Senator James Lankford, Republican of Oklahoma, said on the Senate floor.