Are taxpayers on the hook for bank bailouts?

Story at a glance

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• While the White House says taxpayers will not be on the hook following two recent bank collapses, Republicans say these financial failures could impact every American with a bank account.

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•   Democrats pushed back on that narrative.

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• “Taxpayers are not on the hook, period,” said Sen. Sherrod Brown of Ohio. “There would have been no support for this had this been a taxpayer-funded kind of thing.”

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WASHINGTON, D.C. (NewsNation) — While the White House says taxpayers will not be on the hook following two recent bank collapses, Republicans say these financial failures could impact every American with a bank account.

Republicans at Capitol Hill on Thursday were warning that Americans won’t be immune to the second-largest bank collapse in U.S. history.

The bank failures are sparking a wave of uncertainty, and in some cases, anger. The Ohio Retired Teachers Association spoke out this week after the teachers’ retirement system lost tens of millions of dollars in the Silicon Valley Bank collapse.

“Our position is we ought not be in hedge funds in private equity. We ought to have our money invested in safe indexes, instead,” said Robin Rayfield, an executive director of the Ohio Retired Teachers Association. “Our pension system pays people to gamble with our money and they always lose.”

According to the Federal Deposit Insurance Corporation (FDIC), 561 banks failed between 2001 and 2022. No one has lost money since 1933 due to a bank failure.

But that’s not stopping some Republicans from warning to the contrary.

“Well, somebody’s going to have to pay and ultimately that’s going to have to be the taxpayer,” said Sen. John Cornyn, R-Texas.

Sen. James Lankford, R-Okla., echoed the same sentiment. He told NewsNation that rescuing Silicon Valley Bank will ultimately mean higher fees for depositors.

“Community banks in rural Oklahoma are going to be offsetting what was the loss for millionaires and billionaires in northern California to be able to cover this,” Lankford said.

Democrats, like Sen. Sherrod Brown of Ohio, issued a sharp rebuke of those GOP claims, however.

“Taxpayers are not on the hook, period,” he said. “There would have been no support for this had this been a taxpayer-funded kind of thing.”

Nevertheless, many worry that coming to the aid of the banks won’t put a stop to future risky banking.

“The idea here is that if banks know that they're fully insured on their deposits, they don't have to worry about them as much,” said University of Colorado finance professor Shaun Davis. “They have a higher incentive to take on risky behaviors.”