Treasury Secretary Janet Yellen on Thursday told the Senate Finance Committee that the US banking system is “sound” and Americans can feel “confident” about their deposits in the wake of the second-largest bank collapse in America’s history late last week.
Speaking at the outset of a hearing to examine President Joe Biden’s budget request for the Treasury during the next fiscal year — the first appearance by an administration official at the Capitol since Mr Biden said the Federal Deposit Insurance Corporation would protect uninsured money at Silicon Valley Bank and Signature Bank, a move that some observers have criticised as a “bailout” — Ms Yellen said the decision showed the administration’s “resolve” to maintain Americans’ confidence in the US financial system.
“The government took decisive and forceful actions to strengthen public confidence” in the US banking system, Ms Yellen said. “I can reassure the members of the Committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them."
The Treasury secretary also stressed that “no taxpayer money” will finance the backstopping of failed bank deposits, and said the Federal Reserve would provide “additional support to the banking system” with a “new lending facility”.
“This will help financial institutions meet the needs of all of their depositors,” she said.
In less than a week, Silicon Valley Bank, based in Santa Clara, California, failed after depositors rushed to withdraw money amid anxiety over the bank’s health. Then, regulators convened over the weekend and announced that New York-based Signature Bank also failed. They ensured all depositors, including those holding uninsured funds exceeding $250,000, were protected by federal deposit insurance.
The Justice Department and the Securities and Exchange Commission have since launched investigations into the Silicon Valley Bank collapse.
Thursday's hearing is meant to address President Joe Biden's budget proposal, but it comes after the sudden collapse of the nation’s 16th-biggest bank and go-to financial institution for tech entrepreneurs.
While Ms Yellen will be prepared to talk about spending proposals, the hearing will inevitably turn to the government's decision-making process to intervene in the bank failure.
Lawmakers will likely question whether the money committed to make depositors whole is a bailout and question the degree to which taxpayers will be on the hook for the intervention and the possibility of new regulation impacting the banking system.
Ms Yellen said on CBS' “Face the Nation” last Sunday that a bailout was not on the table, stating, “we’re not going to do that again," referring to the US government's response to the 2008 financial crisis, which led to massive government rescue policies to large US banks.
Ms Yellen, a former Federal Reserve chair and past president of the San Francisco Federal Reserve during the 2008 financial crisis, was a leading figure in the resolution this past weekend, which was engineered to prevent a wider systemic problem in the banking sector.
