WASHINGTON — Plans announced Sunday to totally reimburse deposits made within the collapsed Silicon Valley Bank and the shuttered Signature Bank will depend on Wall Street and huge financial institutions — not taxpayers — to foot the bill, Treasury officials said.
“For the banks that were put into receivership, the FDIC will use funds from the Deposit Insurance Fund to be certain that all of its depositors are made whole,” said a senior Treasury Department official, who spoke to reporters Sunday in regards to the plan on the condition of anonymity.
“The Deposit Insurance Fund is bearing the danger,” the official emphasized. “This will not be funds from the taxpayer.”
The Deposit Insurance Fund is an element of the FDIC and funded by quarterly fees assessed on FDIC-insured financial institutions, in addition to interest on funds invested in government bonds.
The DIF currently has over $100 billion in it, a sum the Treasury official said was “greater than fully sufficient” to cover SVB and Signature depositors.
The Biden administration is deeply aware of the general public anger sparked by taxpayer-funded bailouts of major Wall Street banks in the course of the 2008 financial crisis, and using the DIF to shore up depositors is seen as a option to avoid repeating the identical process.
To that end, federal officials strongly pushed back on the concept the plans for SVB and Signature constituted a “bailout.”
“The banks’ equity and bond holders are being worn out,” said the official at Treasury. “They took a risk as owners of the securities, they may take the losses.”
“The firms will not be being bailed out … depositors are being protected.”
Already Sunday night, there have been early signs that Biden’s plan to make use of the DIF to assist SVB and Signature depositors was meeting the demands of not less than one critic of the 2008 bailouts.
Sen. Bernie Sanders, I-Vt., insisted that “If there’s a bailout of Silicon Valley Bank, it have to be 100% financed by Wall Street and huge financial institutions.”
Sanders blamed SVB’s collapse on successful Republican efforts to calm down banking regulations, signed into law by former President Donald Trump in 2018.
On Sunday, California Democratic Rep. Katie Porter said she was writing laws to reverse the 2018 bill.
On Sunday afternoon, Treasury approved of plans that may unwind each SVB and Signature Bank, based in Latest York, “in a way that fully protects all depositors.”
The dramatic moves come just days after SVB, a key financing hub for tech firms, reported that it was struggling, triggering a run on the bank’s deposits. Signature was closed by the federal government on Sunday.
The SVB failure was the nation’s largest collapse of a financial institution since Washington Mutual went under in 2008.
