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Can SVB, Signature Bank failure solutions be called ‘bailouts’?

(NewsNation) — Critics are condemning the White House’s resolution to protect bankers’ deposits after a pair of banks failed last week, calling the solution a bailout at the taxpayers’ expense.

Sen. James Lankford, R-Okla., issued an official statement earlier this week warning of potentially rising bank fees and lower interest rates.

“Let’s be honest, what’s really happening is a backdoor tax increase on Americans, just not using the IRS to do it,” Lankford said. “It’s using community banks to do it all over the country, to charge a quick higher fee, which they know will mean a higher fee to the people that are members of their bank, and that’s how it’s going to get covered.”

The United States government stepped in after the historic failures of Silicon Valley Bank and Signature Bank — the second- and third-largest bank failures in U.S. history.

Amid some of the panic that followed, President Joe Biden reassured bank customers that they would have access to their money as of Monday, and insisted the cost would not be covered by taxpayers.

To make sure that patrons of Silicon Valley Bank and Signature Bank can still withdraw money, regulators will rely on money from a special deposit insurance fund, which is managed by the FDIC, NewsNation’s partner The Hill explained.

For that reason, some observers have said calling the resolution a “bailout” would be a mischaracterization since the money is sourced from insurance premiums that banks already pay into.

The Deposit Insurance Fund’s assets are equal to about 1.3% of insured deposits, AARP explained in a report earlier this week.

“The FDIC also has a $100 billion line of credit with the U.S. Treasury in case losses exceed the DIF’s assets,” AARP wrote.

In an email to The Hill, however, economist Dean Baker said he considers the assessments a bailout. Baker works for the Center for Economic Policy and Research, a left-leaning think tank.

Although protecting the banks’ deposits so far hasn’t cost taxpayers, it’s not outside the realm of possibility. If the Deposit Insurance Fund were to run dry, taxpayers could be tapped to cover the difference.

“It puts taxpayer dollars at risk (we may not end up paying anything) for a group of people, large depositors, who have no claim to it,” Baker told The Hill. “I think it was the right thing to do, given the reality of the contagion we are seeing, but it is a bailout.”

Ultimately, a bailout is in the eye of the beholder, said Dan Roccato, a finance professor at the University of San Diego.

“One person’s bailout is another person’s lifeline, right?” he said.

According to Roccato, the government is providing backstops to the banks that are in trouble — so far without using taxpayer money.

“Now, you could argue philosophically that government money is taxpayer money, irrespective of the source,” Rocatto said. “But the reality is, at least to date, the government through special mechanisms is setting up different funds, different backstops, so that they’re not injecting taxpayer money directly into these troubled banks.” 

NewsNation’s partner The Hill and NewsNation digital reporter Andrew Dorn contributed to this report.

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