Hundreds of billions of dollars have already been spent on the federal response to the failures of Silicon Valley and Signature banks, raising the question of who will ultimately pay for the aid.
It can take months to fully know the answer.
The Biden administration it guarantees The Federal Reserve has announced a new loan program for all banks that need to borrow money to pay for withdrawals. On Thursday, the Fed said banks had borrowed about $300 billion in emergency funds over the past week, nearly half of which was sent to the holding company, causing two bankruptcies to pay depositors. . The Federal Reserve did not say how many other banks had borrowed the money, but added it expected the loans to be repaid.
Yet, today, taxpayers are not bearing the direct costs of Silicon Valley and Signature’s failures, while other banks may have to bear the costs of covering uninsured deposits.Time Over time, these banks could pass on higher costs to their customers, forcing everyone to pay more for their services.
Here are some questions and answers about the cost of bank failures.
How are rescue fees paid?
Federal regulators suddenly took over Silicon Valley Bank in California and Signature Bank in New York last week. Fear among both corporate investors and customersThese bank failures sent shockwaves of panic throughout the banking industry, The pain of a handful of regional banksPresident Biden and Treasury Secretary Janet Yellen have spent much of this week trying to reassure the American people that the US banking system is secure.
Most of the costs will likely be covered by proceeds received by the Federal Deposit Insurance Corporation from the closure of both banks. Expenses exceeding that will be paid by the state. FDIC Deposit Insurance Fund.
The FDIC, Fed and Treasury Department said in a joint statement that the insurance fund will be replenished through “special assessments” of banks as needed. The cost of that assessment may ultimately be borne by the bank’s customers, though it’s not clear how much.
Will taxpayers be in trouble?
President Biden insists he will not use taxpayer money to solve the crisis. Treasury Secretary Janet Yellen defended her views Thursday after being challenged by Republican lawmakers.
The Fed’s lending program, which helps banks pay depositors, is backed by $25 billion of taxpayer money to cover loan losses. But the Fed said it was unlikely to need money because the loans are backed by government bonds and other safe securities.
Even though taxpayers are not directly responsible, some economists say bank customers still stand to benefit from government support.
Anil Kashyap, a professor of economics at the University of Chicago, said: “Taxpayers paying nothing is ignoring the fact that providing insurance to those who do not pay premiums is a gift. “And that’s kind of what happened.”
So is this a relief?
Biden and other Democrats in Washington deny their actions amount to a bailout.
“It’s not the kind of bailout that happened in 2008,” Senator Richard Blumenthal, a Democrat from Connecticut, said this week when introducing a bill to tighten banking regulation. “In effect, this is depositor protection and a precautionary measure to deter crackdowns on other banks across the country.”
Mr. Biden stressed that bank management would be fired and investors would be unprotected. The 2008 crisis saved some government-financed financial institutions, such as insurance company AIG, from near-certain bankruptcy.
But many economists say Silicon Valley bank depositors, including wealthy venture capitalists and tech startups, still get government backing.
Many Republicans in the Capitol argue that smaller community banks and their customers will cover some of the costs.
Oklahoma’s local banks are “trying to pay a special fee so they can bail out a San Francisco billionaire,” Oklahoma Republican Senator James Lankford said on the Senate floor. rice field.