The funds to reimburse depositors will be paid out of the Deposit Insurance Fund, which is made up of quarterly fees assessed on financial institutions.
"The Deposit Insurance Fund is bearing the risk," the official emphasized. "This is not funds from the taxpayer."is part of the FDIC and funded by quarterly fees assessed on FDIC-insured financial institutions, as well as interest on funds invested in government bonds.
The Biden administration is deeply 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 shore up depositors is seen as a way to avoid repeating the same process. "The banks' equity and bond holders are being wiped out," said the official at Treasury. "They took a risk as owners of the securities, they will take the losses."Already Sunday night, there were early signs that Biden's plan to use the DIF to help SVB and Signature depositors was meeting the demands of at least one critic of the 2008 bailouts.
On Sunday afternoon, Treasury approved of plans that would unwind both SVB and Signature Bank, based in New York, "in a manner that fully protects all depositors."
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