What is the practical difference between a government bailout vs. the FDIC being made to keep all depositors whole, even over the normal insured $250k limit?
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Well the term “bailout” has to be defined. In 2008, the bailouts were essentially emergency loans made by the government in exchange for assets of the company. These loans were (mostly) eventually paid back with a profit to the government.
The FDIC is funded by banks. It is not known in detail how this might happen but it is likely that the FDIC will have to increase the premiums charged to the banks to cover this unforeseen amount. Or they might come up with a different mechanism altogether (although unlikely given that the FDIC operates as an insurance scheme and does not have any alternative funding source)
In terms of the risk shifting, it is conceptually quite different. A bailout by the government necessarily entails that the government has accepted some risk – the companies lent the money might not be able to repay it and their assets might go down in value. If that happens, then it is taxpayer money that is lost.
The FDIC change is shifting risk to the FDIC which is not funded by the government so the risk and costs shift to the other banks who have to pay into the FDIC.
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