Wall Street — not taxpayers — will pay for SVB and Signature’s deposit relief plans

WASHINGTON — Plans announced Sunday to fully refund deposits at the collapsed Silicon Valley Bank and the closed Signature Bank will rely on Wall Street and big financial institutions — not taxpayers — to foot the bill, Treasury Department officials said.

“For those banks that have been placed under receivership, the FDIC will use funds from the Deposit Insurance Fund to ensure that all of their depositors are recovered,” said a senior Treasury Department official who spoke to reporters Sunday about the plan on the condition spoke of anonymity.

“The risk is borne by the deposit insurance fund,” the official emphasized. “It’s not taxpayer money.”

The Deposit Protection Fund is part of the FDIC and is funded by quarterly fees collected from FDIC-insured financial institutions and interest on monies invested in government bonds.

The DIF currently has more than $100 billion at its disposal, a sum the Treasury official called “more than enough” to cover depositors from SVB and Signature.

The Biden administration is aware of the public anger sparked by taxpayer-funded bailouts of major Wall Street banks during the 2008 financial crisis, and using the DIF to support depositors is seen as a way to prevent a repeat of the to avoid the same process.

To that end, federal officials firmly pushed back on the idea that the plans for SVB and Signature represented a “bailout.”

“The holders of stocks and bonds of the banks will be wiped out,” said the Treasury Department official. “You have taken a risk as the owner of the securities, you will bear the losses.”

“Firms will not be bailed out…depositors will be protected.”

As early as Sunday night, there were early signs that Biden’s plan to use the DIF to support SVB and Signature depositors was what at least one critic of the 2008 bailout had called for.

Sen. Bernie Sanders, I-Vt., insisted that “if there is a bailout for Silicon Valley Bank, it must be funded 100 percent by Wall Street and big financial institutions.”

Sanders blamed the SVB’s collapse on successful Republican efforts to relax banking regulations signed into law by former President Donald Trump in 2018.

On Sunday, California Democratic Rep. Katie Porter said she is writing legislation to reverse the 2018 law.

On Sunday afternoon, the Treasury Department approved plans that would wind up both SVB and New York-based Signature Bank “in a manner that fully protects all depositors.”

The dramatic moves come just days after SVB, a key funding hub for tech companies, reported it was struggling, sparking a run on the bank’s deposits. The signature was closed by the government on Sunday.

The collapse of the SVB was the largest financial institution collapse in the country since Washington Mutual’s bankruptcy in 2008.