Will Americans finally foot the bill for bank failures?

The government’s response to the collapse of two major banks has already cost hundreds of billions of dollars. So will ordinary Americans somehow pay for it? And what will the price be?

It may take months for the answers to be fully known. The Biden administration said it would guarantee uninsured deposits at both banks. The Federal Reserve has announced a new loan program for all banks that need to borrow money to pay for withdrawals.

Giving its first glimpse of the magnitude of the response on Thursday, the Fed said banks lent about $300 billion in emergency funding over the past week, nearly half of which went to holding companies for the two bankrupt banks, except savers .pay. The Fed did not say how much money other banks have borrowed, adding that it expects the loans to be repaid.

The aim is to prevent a growing panic where customers rushed to withdraw so much money that even healthy banks were at their limits. This scenario would disrupt the entire financial system and derail the economy.

It is unlikely that taxpayers will bear any direct costs for the Silicon Valley Bank and Signature Bank bankruptcies. However, other banks may need to help cover the cost of uninsured deposits. Over time, these banks can pass higher costs on to customers, forcing everyone to pay more for services.

Here are some questions and answers about the cost of a bank bankruptcy:

How is the answer paid?

Most of the costs of underwriting all deposits with both banks will likely be covered by the proceeds from the Federal Deposit Insurance Corp. from the liquidation of the two banks – either by selling them to other financial institutions or by auctioning their assets.

Any fees above that would be paid from the FDIC’s insurance fund, which is normally used to repay depositors up to $250,000 in the event of a bank failure. The fund is managed with fees paid by participating banks.

Both Silicon Valley and Signature banks had a strikingly high percentage of deposits above that amount: 94% of Silicon Valley deposits were uninsured, as were 90% of Signature deposits. The average for large banks is about half that.

If necessary, the insurance fund will be supplemented by a “special assessment” of the banks, the FDIC, Fed and Treasury Department said in a joint statement. Although the costs of this assessment may ultimately be borne by the bank customers, it is not clear how much money is involved.

Columbia University law professor Kathryn Judge said greater costs to consumers and the economy could result from potentially major changes to the financial system from this episode.

When all customer deposits are formally or informally guaranteed by the government, rules should be tightened to prevent bank failures or reduce their costs when they occur. Banks may have to pay permanently increased fees to the FDIC.

“This requires us to review the entire banking regulatory framework,” Judge said. “That is much more important than the modest fees other banks pay.”

Are the taxpayers addicted?

President Biden has insisted that no taxpayer money will be used to solve the crisis. The White House is doing everything it can to avoid the impression that the average American is “rescuing” the two banks, much like the wildly unpopular bailouts of the largest corporations during the 2008 financial crisis.

“Losses associated with Silicon Valley Bank’s decision will not be borne by taxpayers,” the joint statement from the Treasury Department, Fed and FDIC said.

Treasury Secretary Janet Yellen defended that view Thursday under heavy questioning by GOP lawmakers.

The Fed’s loan program to help banks pay depositors will be backed by $25 billion in taxpayers’ money, which will cover any losses on the loans. But the Fed says the money probably won’t be needed since the loans are backed by government bonds and other safe securities as collateral.

Even if the taxpayer isn’t really into it, some economists say that banks’ customers still benefit from government support.

“To say the taxpayer won’t pay anything ignores the fact that offering insurance to someone who hasn’t paid for it is a gift,” said Anil Kashyap, an economics professor at the University of Chicago. “And something like that happened.”

So is this a lifeline?

Biden and other Democrats in Washington deny that their actions amount to any sort of bailout.

“This is not a bailout like in 2008,” said Sr. Richard Blumenthal (D-Conn.) said this week as he proposed legislation to tighten banking regulations. “This is indeed depositor protection and a pre-emptive measure to stop a run on other banks across the country.”

Biden stressed that bank executives would be fired and their investors would not be protected. Both banks will no longer exist. During the 2008 crisis, some state-backed financial institutions, such as insurer AIG, were saved from almost certain bankruptcy.

Still, many economists say Silicon Valley Bank depositors, including wealthy venture capitalists and tech startups, still receive federal aid.

“Why is it healthy capitalism for someone to take a risk and then be protected from that risk if that risk actually materializes?” asks Raghuram Rajan, a professor of finance at the University of Chicago and former governor of the central bank of india. “In the short term, it’s probably good in the sense that you don’t have widespread panic. … But it’s problematic for the system in the long run.

Many Republicans on Capitol Hill argue that smaller community banks and their customers will bear some of the costs.

Banks in rural Oklahoma “are about to pay an extra fee to bail out millionaires in San Francisco,” Sen. James Lankford (R-Okla.) said in the Senate.

Associated Press writer Fatima Hussein and video journalist Rick Gentilo contributed to this report.