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

Rescue plan announced for First Republic Bank
First Republic Bank rescue plan announced; Janet Yellen says banking system "remains sound" 04:47

The federal government's response to the failure of Silicon Valley and Signature banks has already involved hundreds of billions of dollars, which brings into question who will end up paying for the aid.

It could be months before the answers are fully known. 

The Biden administration said it 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 pay for withdrawals. On Thursday, the Fed said banks had borrowed about $300 billion in emergency funding in the past week, with nearly half that amount going to holding companies for the two failed banks to pay depositors. The Fed did not say how many other banks borrowed money and added that it expects the loans to be repaid.

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

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

How is the rescue being paid for?

Federal regulators abruptly took over Silicon Valley Bank of California and Signature Bank of New York last week, causing fear among both companies investors and customers. The collapse of those banks sent panic shockwaves across the banking industry, creating pain for a handful of regional banks. President Biden and Treasury Secretary Janet Yellen have spent most of this week trying to reassure Americans that the U.S. banking system is safe.  

Most of the cost will likely be covered by proceeds the Federal Deposit Insurance Corp. receives from winding down the two banks. Any costs beyond that would be paid for out of the FDIC's deposit insurance fund.

If necessary, the insurance fund will be replenished by a "special assessment" on banks, the FDIC, Fed and Treasury said in a joint statement. Though the cost of that assessment could ultimately be borne by bank customers, it's not clear how much money would be involved.

Will taxpayers be on the hook?

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

Yellen testifies on Capitol Hill as bank stocks see slight rebound 05:51

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

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

"Saying that the taxpayer won't pay anything ignores the fact that providing insurance to somebody who didn't pay for insurance is a gift," said University of Chicago economics professor Anil Kashyap. "And that's kind of what happened."

So is this a bailout?

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

"It's not a bailout as happened in 2008," Sen. Richard Blumenthal, a Democrat from Connecticut, said this week while proposing legislation to toughen bank regulation. "It is, in effect, protection of depositors and a preventive measure to stop a run on other banks all around 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 financial aid, like the insurer AIG, were rescued from near-certain bankruptcy.

Yet many economists said the depositors at Silicon Valley Bank, which included wealthy venture capitalists and tech startups, are still receiving government help.

Many Republicans on Capitol Hill argue that smaller community banks and their customers will shoulder some of the cost.

Banks in rural Oklahoma "are about to pay a special fee to be able to bail out millionaires in San Francisco," Sen. James Lankford, a Republican from Oklahoma, said on the Senate floor.

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