Yellen seeks to reassure US legislators after bank collapse

Treasury chief tells lawmakers that customers ‘can feel confident that their deposits will be there when they need them’.

US Treasury Secretary Janet Yellen on March 16, 2023, became the first member of President Joe Biden's administration to testify before legislators after Silicon Valley Bank's collapse [Mariam Zuhaib/AP Photo]

United States Treasury Secretary Janet Yellen has sought to reassure legislators – and US citizens – that the country’s banking system remains “sound” in the wake of the second largest bank collapse in its history.

Yellen on Thursday became the first official from President Joe Biden’s administration to face legislators over the decision to protect uninsured money at two failed regional banks, part of a series of actions Washington has maintained does not constitute a bailout.

“I can reassure the members of the committee that our banking system is sound and that Americans can feel confident that their deposits will be there when they need them,” Yellen said during a Finance Committee hearing in the Senate.

“This week’s actions demonstrate our resolute commitment to ensure that our financial system remains strong and the depositors’ savings remained safe,” she said.

The hearing came days after the failure of California-based Silicon Valley Bank, the 16th biggest US bank and a go-to financial institution for tech entrepreneurs, after depositors rushed to withdraw money over anxiety about the bank’s health.

The rush prompted liquidity risks that meant the bank could not meet depositors’ withdrawal requests. Authorities closed the bank on Friday.

Regulators then convened over the weekend and announced that New York-based Signature Bank, almost a quarter of whose deposits were from the cryptocurrency sector, had also failed.

The Justice Department and the Securities and Exchange Commission have since launched investigations into the Silicon Valley Bank collapse. Authorities have assured all depositors, including those holding uninsured funds exceeding $250,000, that they would be protected by federal deposit insurance.

The collapse has renewed debate over deregulation of the US financial industry and government intervention.

Facing pressure from the influential tech industry to act, Washington on Sunday launched a raft of emergency measures to shore up confidence in the banking system. The move appeared to stem any broader run on banks.

“First, we worked with the Federal Reserve and FDIC [Federal Deposit Insurance Corporation] to protect all depositors of the two failed banks,” Yellen told legislators on Thursday.

“Second, the Federal Reserve is providing additional support to the banking system with a new lending facility,” she said. “This will help financial institutions meet the needs of all of their depositors.”

Yellen added: “Shareholders and debt holders are not being protected by the government. Importantly, no taxpayer money is being used or put at risk with this action.”

However, Senator Mike Crapo said he was “concerned about the precedent of guaranteeing all deposits and the market expectations moving forward”.

Speaking on CBS’s Face the Nation programme on Sunday, Yellen had said that bailouts were not on the table.

“We’re not going to do that again,” she said, referring to the US government’s response to the 2008 financial crisis, which led to massive government rescue policies for large US banks.

Biden also sought to reassure Americans earlier this week.

The US president told reporters on Monday that he would seek to hold those responsible to account and push for better oversight and regulation of larger banks while he also promised that “no losses would be borne by the taxpayers”.

“Americans can have confidence that the banking system is safe,” Biden said. “Your deposits will be there when you need them.”

Source: Al Jazeera and news agencies