Wall Street – not taxpayers – will pay for SVB and Signature’s investment relief plans

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WASHINGTON – Plans announced Sunday to fully repay investments made in the collapsed Silicon Valley Bank and the shuttered Signature Bank will be up to Wall Street and big financial institutions – not taxpayers – to pay the bill, Treasury officials said.

“For the banks that have been put into receivership, the FDIC will use money from the Deposit Insurance Fund to make sure that all the depositors are made whole,” said a senior Treasury official, who spoke to reporters on Sunday about the plan on condition. anonymous.

“The risk is the Investment Insurance Fund,” the official said. “This is not taxpayer money.”

The Investment Insurance Fund is part of the FDIC and is funded by quarterly taxes assessed on FDIC-insured financial institutions, as well as interest on money invested in government bonds.

The DIF currently has more than $100 billion in it, an amount the Treasury official said was “more than enough” to cover SVB and Signature investors.

The Biden administration is acutely aware of the public anger caused by the taxpayer-funded bailout of major Wall Street banks during the 2008 financial crisis, and the use of the DIF to bail out investors is seen as a way have avoided the same process.

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

“The equity and bond holders of the banks are being liquidated,” said a Treasury official. “They were at risk as securities holders, they will take the losses.”

“Companies are not being taken out … investors are being protected.”

Already on Sunday night, there were early signs that Biden’s plan to use the DIF to help SVB and Signature investors was meeting the demands of at least one critic of the 2008 bailout.

Sen. Bernie Sanders, I-Vt., said, “If there is a Silicon Valley Bank bailout, it has to be 100 percent funded by Wall Street and big financial institutions.”

Sanders blamed 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 Representative Katie Porter said she was writing legislation to reverse the 2018 bill.

On Sunday afternoon, the Department of Finance approved plans to release both SVB and Signature Bank, which is based in New York, “in a manner that fully protects all investors.”

The dramatic moves come just days after SVB, a major financial institution for tech companies, reported it was struggling, prompting a run on the bank’s deposits. A signature was closed by the government on Sunday.

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

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