Don't use the B word in this house, mister! 🤭We're talking about the word "bailout" and we're talking about big banks. 💰🏛️ Is it just us, or does it smell like 2008 in here?
The government recently stepped in and gave two big banks a "helping hand." 🫱🏼🫲🏻 Unlike similar situations in the past, they're not calling this one a bailout. 🤔 So, what exactly happened? How does it impact the average American?
Here’s Five Fast Facts on the recent bank failures:
- 💸 Gotta Bail! - Traditional bailouts go down when a government or government agency steps in to save a company or bank by giving them extra cash, credit, or whatever else they need. This kind of response is reserved for big-time boo-boos, like when letting the bank or company fail would create a much larger problem. Unlike the bank bailouts of '08 that saved the butts of bank owners and investors, this current rescue mission is supposed to be focused on the people who have their money in these banks.
- ☔ Cover Me - The failure of Silicon Valley Bank (SVB) and Signature Bank caused a bit of a panic. Customers started pulling their money out in a frenzy! The government insures up to $250,000 of each customer's money in an emergency, but when everyone tries to take their money out at once, banks have a tough time following through on that promise.
- 🦸 To The Rescue - In response, the Biden admin said it will guarantee uninsured deposits at both banks. The Feds also announced a new lending program for all banks that need to borrow money to pay for withdrawals. As of mid-March, the Fed said banks tapped into $300 billion of the emergency funds. Almost half of it went towards paying depositors at SVB and Signature.
- 🎣 Who's On The Hook? - Taxpayers won't be on the hook for these losses. Instead, the money will come from the fees that all major banks pay into the Deposit Insurance Fund bucket (must be a big bucket.) The problem is that the more this bucket gets tapped into, banks will have to cover the costs of rising insurance. This could get passed down to customers in the form of higher fees.
- 😡 Bail THESE! - Critics of the government's response say big bank failures like these cause fear and a loss of trust in financial institutions. Bailouts (or whatever you like to call them) also make regular citizens mad because it seems like big bank billionaires are getting rewarded for bad behavior. It sometimes shines a light on everything the government isn't paying for when it comes to taking care of the little guy (housing, healthcare, etc).
🔥Bottom line: It's too soon to tell what the downstream impacts of the recent happenings will have on the American people and the banking industry. Many believe the government should step in and prevent a larger financial catastrophe. However, many people are still shaken up from the ghost of bailouts past and have very good reasons to be critical. But don't worry, this one wasn't a bailout!
Were you spooked by the recent bank failures?
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