The head of the Treasury tells lawmakers that customers can “rest assured that their deposits will be there when they need them.”
US Treasury Secretary Janet Yellen has sought to reassure lawmakers – 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 in President Joe Biden’s administration to face lawmakers over the decision to protect uninsured money at two failed regional banks, part of a series of actions that Washington says do not constitute a bailout.
“I can reassure the members of the committee that our banking system is sound and that Americans can be confident that their deposits will be there when they need them,” Yellen said at a Senate Finance Committee hearing.
“This week’s actions demonstrate our determined commitment to ensuring that our financial system remains strong and depositors’ savings remain safe,” she said.
The hearing came days after the bankruptcy of California-based Silicon Valley Bank, the 16th largest U.S. bank and a go-to financial institution for tech entrepreneurs, after depositors rushed to withdraw money amid concerns about the bank’s health. .
The rush created liquidity risks that prevented the bank from meeting depositors’ withdrawal requests. Authorities closed the bank on Friday.
Regulators then met over the weekend and announced that New York-based Signature Bank, whose nearly a quarter of its deposits came from the cryptocurrency sector, had also filed for bankruptcy.
The Justice Department and the Securities and Exchange Commission have since launched an investigation into the Silicon Valley Bank collapse. Authorities have assured all depositors, including those with uninsured funds in excess of $250,000, that they are protected by federal deposit insurance.
The collapse has revived the debate over deregulation of the US financial sector and government intervention.
Pressured by the influential tech industry to act, Washington on Sunday launched a series of emergency measures to bolster confidence in the banking system. The move appeared to halt a wider run on banks.
“First, we worked with the Federal Reserve and the FDIC (Federal Deposit Insurance Corporation) to protect all depositors of the two failed banks,” Yellen told lawmakers on Thursday.
“Second, the Federal Reserve is providing additional support to the banking system with a new loan facility,” she said. “This will help financial institutions meet the needs of all their depositors.”
Yellen added: “Shareholders and debt holders are not protected by the government. It is important that no tax money is used or endangered with this action.”
However, Senator Mike Crapo said he was “concerned about the precedent of guaranteeing all deposits and future market expectations.”
Speaking on CBS’s Face the Nation program on Sunday, Yellen had said 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 bailouts for major US banks.
Biden also tried to reassure Americans earlier this week.
The US president told reporters on Monday he would seek to hold those responsible accountable and push for better oversight and regulation of larger banks, while also promising that “no losses would be borne by taxpayers”.
“Americans can be confident that the banking system is safe,” Biden said. “Your deposits will be there when you need them.”