Biden says no bailouts for SVB, Signature Bank; critics argue customers will pay the price

WASHINGTON (TND) — A historic rescue of two banks by the federal government has brought about ferocious finger-pointing on what caused their collapse.

There are also concerns over what the modern-day relationship between the federal government and banks will look like in the months and years ahead, with one question looming large: Was this a bailout?

The emergency rescue occurred in a sea of unknowns, met with what was for many a collective sigh of relief.

It followed the announcement that the federal government would step in to help in response to the collapse of Silicon Valley Bank and later Signature Bank.

"There are many people who are living paycheck to paycheck and if this was delayed any further, I can't imagine what the ramifications for a lot of those works would be," Jack Singh, an advisor with Avahi, Inc., said in an interview with CNN.

On Monday, President Joe Biden insisted that the action would boost trust in the banking system and was not a bailout.

“No losses will be borne by the taxpayers. Let me repeat that: No losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund," he said from the White House.

But some in Washington are sounding alarm bells. Sen. Josh Hawley, R, Mo., announced he would introduce legislation to prevent banks from passing on new fees to customers.

In a tweet, he wrote, "no way MO customers are paying for a woke bailout."

“Now, we live in a world where certain politically favored businesses are propped up, backstopped and bailed out by government no matter how reckless they may be," former Vice President Mike Pence wrote in an op-ed for The Daily Mail.

Others are blaming Congress and former President Donald Trump for weakening regulations on small to midsize banks, which in turn emboldened the CEOs.

"They decided to load up on risk. And why? They loaded up on risk because it made their banks more profitable and that meant it made them have higher salaries," Sen. Elizabeth Warren, D-Mass., said in an interview with Rachel Maddow on MSNBC Monday.

In this case, depositors were protected but shareholders and executives were not, so it wasn’t a bail-out in the traditional sense of the word. Still, concerns are running high that knowing these banks were saved will signal to other banks their deposits too will be guaranteed by the federal government.

"This is the first thing I talk to my students about — this idea of moral hazard," said Pao-Lin Tien, a professor of economics at George Washington University. "Because you behave badly this first time and someone comes to rescue you, then the likelihood of you behaving badly again just goes up that much higher."

Calls for a balanced approach remain as many hope to instill trust in the system as a whole and not return to a world of "too big to fail" or "too small to survive."