The Federal Deposit Insurance Corporation, which insures bank deposits, said it will shoulder the load of covering deposits at the failed Silicon Valley and Signature banks. Getty Images
The federal government has guaranteed that depositors with money at Silicon Valley Bank and Signature Bank will have access to their money — even those with deposits above $250,000, which are not usually insured.
The government also said the taxpayers will bear no losses for those depositors being made whole. Instead, the money’s coming from the Deposit Insurance Fund, which is part of the Federal Deposit Insurance Corporation, or FDIC.
Any bank insured by the FDIC has to pay quarterly premiums to the agency.
“I guess it is life insurance — it’s basically life insurance for a bank,” said Dan Giedeman, an economics professor at Grand Valley State University.
And just like with life insurance, if the bank is healthy, “We’ll charge them a much lower premium than if somebody maybe behaves recklessly,” Giedeman said.
Those premiums are the main source of revenue for the FDIC’s Deposit Insurance Fund. At the end of 2022, it had over $128 billion in it.
It’s unclear at the moment how much paying the depositors of the failed banks will set the fund back, and existing banks are required by law to make up the difference.
“When FDIC pays out, it has by statute a mandate to go back and have an extraordinary assessment on the living banks to recoup what it paid,” said Anna Gelpern, a law and finance professor at Georgetown and a fellow at the Peterson Institute for International Economics.
Gelpern said those assessments became more comprehensive following the 2008 financial crisis. The costs of them could trickle down to regular consumers — anyone who banks.
“Is it going to cost you? Probably,” according to William Chittenden, a finance professor at Texas State University. “Either you would earn a little bit less on your deposit. Or you might pay just a hair more on your loan.”
Those costs are part of what Georgetown’s Anna Gelpern says comes with the social compact of operating a banking system.
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FAQs
Most of the cost will likely be covered by proceeds the Federal Deposit Insurance Corp. receives from winding down the two banks. Any costs beyond that would be paid for out of the FDIC's deposit insurance fund.
Who pays for the FDIC to reimburse people when a bank fails? ›
What is the source of funding used by the FDIC to pay insured depositors of a failed bank? The FDIC's deposit insurance fund consists of premiums already paid by insured banks and interest earnings on its investment portfolio of U.S. Treasury securities. No federal or state tax revenues are involved.
Do taxpayers pay for bank failures? ›
FDIC Deposit Insurance Fund Balance
While taxpayers may not directly foot the bill, some losses may ultimately trickle down. For example, if your bank has to pay more for deposit insurance, it might charge you a higher interest rate on a loan or offer you a lower interest rate on your savings account.
Who does the FDIC answer to? ›
The FDIC is managed by a five-person Board of Directors that includes the Comptroller of the Currency and the Director of the Consumer Financial Protection Bureau, all of whom are appointed by the President and confirmed by the Senate, with no more than three being from the same political party.
Can banks seize your money if the economy fails? ›
It indicates an expandable section or menu, or sometimes previous / next navigation options. Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Do customers lose their money when a bank fails? ›
The Federal Deposit Insurance Corp. (FDIC) insures bank accounts up to $250,000 per depositor, per account category. 1 So, unless your bank is not insured by the FDIC or you have deposited more than the FDIC limit, your money is safe if your bank fails.
Why did people oppose the FDIC? ›
Opposition to such a plan had been voiced earlier by President Roosevelt, the Secretary of the Treasury and the Chairman of the Senate Banking Committee. They believed a system of deposit insurance would be unduly expensive and would unfairly subsidize poorly managed banks.
Is the FDIC not taxpayer funded? ›
The FDIC is funded by FDIC-insured institutions, not taxpayers, and FDIC deposit insurance is backed by the full faith and credit of the United States Government. FDIC deposit insurance coverage depends on the type of banking products you have. Depositors do not need to apply for FDIC insurance.
Are credit unions safer than banks? ›
Generally, credit unions are viewed as safer than banks, although deposits at both types of financial institutions are usually insured at the same dollar amounts. The FDIC insures deposits at most banks, and the NCUA insures deposits at most credit unions.
Is the Fed to blame for bank failures? ›
The Fed admitted it was partly to blame for the collapse of the lender in a scathing report on Friday. The Federal Reserve says its own light-touch approach to bank regulation is partly to blame for the collapse of Silicon Valley Bank last month, and it promised more vigorous oversight in the future.
So, no, your loans aren't forgiven if your lender goes bankrupt. You're still responsible for making payments, the only difference is that you'll be sending payments to another institution instead of the one that originally gave you the loan.
Can banks keep your money if they fail? ›
The good news is as long as your banking institution is insured by the FDIC (Federal Deposit Insurance Corporation), your money should be safe. The government agency's primary purpose is insuring your money in case of bank failure.
How do I insure $2 million in the bank? ›
Here are seven of the best ways to insure excess deposits that you may have.
- Understand FDIC limits. ...
- Use bank networks to maximize coverage. ...
- Open accounts with different ownership categories. ...
- Open accounts at several banks. ...
- Consider brokerage accounts. ...
- Deposit excess funds at a credit union.
An account that contains more than $250,000 at one bank, or multiple accounts with the same owner or owners, is insured only up to $250,000. The protection does not come from taxes or congressional funding. Instead, banks pay into the insurance system, and the insurance provides their customers with protection.
Who is the FDIC owned by? ›
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted during the Great Depression to restore trust in the American banking system.
Do taxpayers pay for FDIC insurance? ›
The FDIC is funded by FDIC-insured institutions, not taxpayers, and FDIC deposit insurance is backed by the full faith and credit of the United States Government. FDIC deposit insurance coverage depends on the type of banking products you have.
Who bailed out Silicon Valley Bank? ›
On March 12, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve invoked emergency lending authority to backstop the debt of two large regional banks, Silicon Valley Bank and Signature Bank.
Who bought the failed bank? ›
But on May 1, the FDIC placed First Republic into receivership, and JPMorgan Chase agreed to acquire much of the failed bank .
