Page 12 - ATD20MAR2023

A12 business
Monday 20 March 2023
Will Americans end up footing

the bill for bank failures?

By CHRISTOPHER RUGABER
Associated Press
WASHINGTON (AP) — The
government's response
to the failure of two large
banks has already involved
hundreds of billions of dol-
lars. So will ordinary Ameri-
cans end up paying for it,
one way or another? And
what will the price tag be?
It could be months be-
fore the answers are fully
known. The Biden adminis-
tration said it will guarantee
uninsured deposits at both A pedestrian carries an umbrella while walking past a Silicon
banks. The Federal Reserve Valley Bank Private branch in San Francisco, Tuesday, March
announced a new lending 14, 2023.
program for all banks that Associated Press
need to borrow money to
pay for withdrawals. or by auctioning off their to pay permanently higher
On Thursday, the Fed pro- assets. fees to the FDIC.
vided the first glimpse of Any costs beyond that "It's going to require us to
the scale of the response: would be paid for out of the revisit the entire bank regu-
It said banks had borrowed FDIC's deposit insurance latory framework," Judge
about $300 billion in emer- fund, which is typically said. "That's far more signifi-
gency funding in the past used in the event of a bank cant than the modest costs
week, with nearly half that failure to reimburse deposi- that other banks will pay."
amount going to hold- tors for up to $250,000 per WILL TAXPAYERS BE ON THE
ing companies for the two account. The fund is main- HOOK?
failed banks to pay deposi- tained with fees paid by President Joe Biden has
tors. The Fed did not say participating banks. insisted that no taxpayer
how many other banks bor- Both Silicon Valley and Sig- money will be used to re-
rowed money and added nature banks had a strik- solve the crisis. The White
that it expects the loans to ingly high share of deposits House is desperate to avoid
be repaid. above that amount: 94% any perception that aver-
The goal is to prevent a of Silicon Valley's deposits age Americans are "bailing
broadening panic in which were uninsured, as were out" the two banks in a way
customers rush to pull out 90% of deposits at Signa- similar to the highly unpop-
so much money that even ture. The average figure for ular bailouts of the biggest
healthy banks buckle. That large banks is about half financial firms during the
scenario would unsettle the that level. 2008 financial crisis.
entire financial system and If necessary, the insurance "No losses associated with
risk derailing the economy. fund will be replenished the resolution of Silicon
Taxpayers will probably by a "special assessment" Valley Bank will be borne
bear no direct cost for on banks, the FDIC, Fed by the taxpayer," read the
the failure of Silicon Valley and Treasury said in a joint joint statement from the
Bank and Signature Bank. statement. Though the cost Treasury, Fed and FDIC.
But other banks may have of that assessment could ul- Treasury Secretary Janet
to help defray the cost of timately be borne by bank Yellen defended that view
covering uninsured depos- customers, it's not clear Thursday under tough
its. Over time, those banks how much money would questioning from GOP law-
could pass higher costs on be involved. makers.
to customers, forcing ev- Kathryn Judge, a law pro- The Fed's lending program
eryone to pay more for ser- fessor at Columbia Univer- to help banks pay deposi-
vices. sity, said a bigger cost to tors is backed by $25 bil-
Here are some questions consumers and the econo- lion of taxpayer funds that
and answers about the my could stem from poten- would cover any losses on
cost of the bank collapses: tially major changes to the the loans. But the Fed says
HOW IS THE RESPONSE BE- financial system that result it's unlikely that the money
ING PAID FOR? from this episode. will be needed because
Most of the cost of guaran- If all customer deposits the loans will be backed by
teeing all deposits at both were considered guaran- Treasury bonds and other
banks will likely be cov- teed by the government, safe securities as collateral.
ered by the proceeds the formally or informally, then Even if taxpayers aren't di-
Federal Deposit Insurance regulations would need to rectly on the hook, some
Corp. receives from wind- be strengthened to pre- economists say the banks'
ing down the two banks vent bank failures or lessen customers still stand to
— either by selling them to their costs when they do benefit from government
other financial institutions happen. Banks might have support.q