It could be months before the answers are fully known. The Biden administration said it will guarantee uninsured deposits at both banks. The Federal Reserve announced a new lending program for all banks that need to borrow money to pay for withdrawals.
On Thursday, the Fed provided the first glimpse of the scale of the response: It 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.
Taxpayers will probably bear no direct cost for the failure of Silicon Valley Bank and Signature Bank. But 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.
Most of the cost of guaranteeing all deposits at both banks will likely be covered by the proceeds the Federal Deposit Insurance Corp. receives from winding down the two banks — either by selling them to other financial institutions or by auctioning off their assets.
Any costs beyond that would be paid for out of the FDIC's deposit insurance fund, which is typically used in the event of a bank failure to reimburse depositors for up to $250,000 per account. The fund is maintained with fees paid by participating banks.
Both Silicon Valley and Signature banks had a strikingly high share of deposits above that amount: 94% of Silicon Valley’s deposits were uninsured, as were 90% of deposits at Signature. The average figure for large banks is about half that level.
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.
Democrats are claiming that the average American taxpayer will not bear any of the cost for the Biden bailout.
Yet many economists say the depositors at Silicon Valley Bank, which included wealthy venture capitalists and tech startups, are still receiving government help.
“Why is it sensible capitalism for somebody to take a risk, and then be protected from that risk when that risk actually happens?” asked Raghuram Rajan, a finance professor at the University of Chicago and former head of India's central bank. “It’s probably good for the short term in the sense that you don’t have a widespread panic. ... But it is problematic for the system long term."
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.