It cost $22 billion to rescue two failed banks. Now the question is who will pay

Freedom Bank was founded two decades ago in Montana's Flathead Valley, an area well known for fly fishing and whitewater rafting that is a world away from Silicon Valley.

The community lender has built its business by catering to locals, offering a mix of mortgages, car loans and commercial loans from its home base in the tiny town of Columbia Falls.

It's a business model far different than Silicon Valley Bank's, which grew aggressively by focusing on tech entrepreneurs. Freedom's balance sheet is measured in millions, not billions of dollars.

Yet Freedom Bank and other community banks are growing worried they will now have to help pay for the rescue of Silicon Valley, as well as New York-based Signature Bank, after regulators last month took the unprecedented step of backstopping all deposits at both lenders.

It was a move that helped stabilize the banking sector, but it was one that came with a hefty price tag: $22 billion.

The Federal Deposit Insurance Corp (FDIC) now needs to recover that cost. It plans to impose a "special assessment" on banks but has yet to decide which lenders will need to pay that fee.

Don Bennett, Freedom Bank's CEO, believes strongly his bank should not be on the hook.

"I don't think that community banks should pay the price of, you know, the disaster that took place," Bennett argues. "Because we had nothing to do with it."

A conservative business model

Bennett started Freedom Bank in 2005, in his basement. Soon after, he moved it into a trailer, then, into a big building downtown — not too far from the Flathead River.

Freedom Bank has grown, but its business model hasn't changed much. Bennett says decisions are driven by "common sense."

"We're a vital part of our community, and we're doing very well," he says. "I just want to stay safe and liquid."

Unlike many other lenders, including Silicon Valley Bank and Signature Bank, Freedom Bank didn't load up on U.S. government bonds when interest rates were low. Those investments have lost value as interest rates have gone up, and it's a big reason why those two banks failed.

"We don't have any losses in our portfolio whatsoever," Bennett says.

Other small lenders oppose paying for a rescue

Community banks see this as a basic issue of fairness.

Under the country's current system, banks pay into the FDIC's deposit fund, which is meant to insure all deposits up to $250,000.

But regulators decided to tap into that fund when rescuing Silicon Valley Bank and Signature Bank, even though the bulk of deposits at both lenders were above that cap and hence should not have been insured by the FDIC scheme.

Take Three Rivers Bank of Montana, which is about 20 miles away from Columbia Falls, in Kalispell.

The community bank forks over $130,000 to the FDIC every year for deposit insurance, and CEO A.J. King says he's not keen to pay the regulator any more money.

"For the size of our bank, that's a big expense," he says. "That's a commercial lender's salary."

Like Bennett, King says his bank has been run responsibly. It has about $300 million in assets, with a strong portfolio of loans to local businesses, including loggers and concessionaires in nearby Glacier National Park.

"We're totally innocent in this, and now they're saying, 'OK, banks. You're going to have to pay for this,'" he says. "I don't think we should be responsible for paying for what other banks did."

Exempting community banks from any special fee

Lawmakers also say they are hearing complaints from community banks.

Sen. Steve Daines, a Republican from Montana — where both Freedom Bank and Three Rivers Bank are located — expressed his concerns at a recent Senate hearing with top regulators including FDIC Chair Martin Gruenberg.

"We're facing a situation where responsible banks in my home state of Montana, and elsewhere, will be on the hook for providing tens of billions of dollars, potentially more, to bail out irresponsible, coastal banks," Daines said during the hearing.

Gruenberg made no firm commitment, but he seemed sympathetic.

"Let me just say, without forecasting what our board is going to vote, we're going to be keenly sensitive to the impact on community banks," the FDIC chair told lawmakers.

The White House has said it backs an exemption for small, community banks, though it will ultimately be a decision taken the FDIC. The regulator has said it will release its proposal for the special assessment in May.

More regulations could be coming

Even if the FDIC decides to exempt community banks from paying the fee, there's another way that smaller lenders like Freedom Bank and Three Rivers Bank could be impacted for a long time to come by the banking turmoil last month.

Many small banks have seen customers move money to larger lenders, and they are also bracing for increased regulations on their businesses.

The Federal Reserve, for example, is considering increasing the number of banks that undergo stress tests, though it would still likely exempt small lenders.

Meanwhile, the White House is asking Congress to give regulators the power to claw back compensation from executives of banks that fail because of "mismanagement and excessive risk taking."

King says Three Rivers Bank has more than 50 employees, many of them hired only to deal with complying with current rules.

"About half of them never talk to a customer," he says. "And it's all because of regulation."

King has been a banker now for 37 years, and he says it's not as much fun as it used to be.

Now, he worries it will become even less fun, all because of events that happened hundreds of miles away.

"I'm telling you," he says. "It's so difficult to be a small, independent community bank these days."