Where does the money to ‘bail out’ banks come from? Is taxpayer money being used?
Unlike the 2009 bank bailout, the US taxpayers are not being forced to foot the bill to make whole SVB and Signature Bank account holders.
Last week the FDIC announced that “no losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers.” The bank’s failure reminded many onlookers of the 2008 financial crisis that required the public to save major financial institutions to avoid an even greater economic crisis. However, many families and individuals who lost their homes, jobs, and retirement were not so lucky. For many in this group, the events following the SVB collapse were a painful reminder of how far the US government will go to protect the wealthy and powerful while leaving those without such high incomes to fend for themselves when major financial institutions are mismanaged and take risky bets they cannot afford.
Additionally, Senator Elizabeth Warren raised doubts that no taxpayer monies would be needed to bail out SVB and Signature Bank, a New York-based bank that failed a few days later.
“Regulators have said that banks, rather than taxpayers, will bear the cost of the federal backstop required to protect deposits. We’ll see if that’s true,” said Warren. The Massachusetts Senator also noted many in the US are growing increasingly skeptical of an economic system “holds millions of struggling student loan borrowers in limbo but steps in overnight to ensure that billion-dollar crypto firms won’t lose a dime in deposits.”
How will the bailout be funded?
The bailout of SVB and Signature Bank, which failed a few days after the Santa Clara-based bank, will be paid for through the Deposit Insurance Fund (DIF). The DIF has two “primary purposes.” The first is “to insure the deposits and protect the depositors of insured banks,” as they have done in these two cases. The federal government actually went further than legally required and will compensate depositors beyond the $250,000 level that the FDIC is required to insure. The second role is “to resolve failed banks,” which requires the agency to either dissolve, sell, or transfer the financial institution after it collapses.
Read more from AS USA:
To execute this mandate, the FDIC has two main sources of funding. The first is insurance premiums changed to banks covered by the FDIC. The agency then invests those funds, which creates the second stream of revenue, interest on those investments.
Additionally, the bill is not as high as it would have been if shareholders had to be compensated for the losses they incurred when the value of SVB dropped to zero. The Biden administration made it clear that the FDIC would not compensate shareholders and some investors who had placed reckless bets.
To be able to comment you must be registered and logged in. Forgot password?