With the Federal Deposit Insurance Corporation (FDIC) promising that it would be covering Silicon Valley Bank’s (SVB) uninsured deposits, critics have levied accusations that this amounts to a bailout. President Joe Biden has repudiated this characterization, clarifying that the funds used to ensure SVB depositors don’t come from the taxpayer but from bank fees. While this statement is partially true, the reality is that asset sales take the brunt of these costs while the consumers take the rest.
For consumers with deposits under $250,000, this was always understood, and the FDIC has built a system for protecting their funds. The Depositor Insurance Fund (DIF) is an emergency reserve for moments like this. Most depositors have bank accounts insured this way. After bank failures, the fund gets replenished through fees imposed on banks. These fees, like taxes, are then passed down to the depositor.
Published in its entirety in Medium.