The treasury chief told lawmakers that customers “can be sure 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 collapse of the second largest bank in its history.
Yellen on Thursday became the first official in President Joe Biden’s administration to confront lawmakers over the decision to protect uninsured money at two failed regional banks, part of a series of actions Washington maintained that it was not a bailout.
“I can reassure committee members that our banking system is strong and Americans can be confident that their deposits will be there when they need them,” Yellen said during a Senate Finance Committee hearing.
“This week’s actions demonstrate our strong commitment to ensuring our financial system remains strong and depositors’ savings remain safe,” she said.
The hearing took place a few days after the failure 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 cash amid concerns over the health of the bank.
The rush created liquidity risks that prevented the bank from meeting depositors’ withdrawal requests. Authorities closed the bank on Friday.
Regulators then convened over the weekend and announced that New York-based Signature Bank, nearly a quarter of whose deposits came 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 assured all depositors, including those with uninsured funds exceeding $250,000, that they would be protected by federal deposit insurance.
The collapse has renewed debate on deregulation of the US financial industry and government intervention.
Faced with pressure from 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 stem any wider run on the 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 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 their depositors. »
Yellen added: “Shareholders and creditors are not protected by the government. It is important to note that no taxpayer money is used or put at risk with this action.
However, Senator Mike Crapo said he was “concerned about the precedent of guaranteeing all deposits and market expectations going forward.”
Speaking on CBS’ Face the Nation Sunday, Yellen said bailouts were not on the table.
“We’re not going to do it again,” she said, referring to the US government’s response to the 2008 financial crisis, which led to massive government bailout policies for major US banks.
Biden too sought to reassure Americans earlier this week.
The US president told reporters on Monday he would seek to hold officials to account and push for better oversight and regulation of big banks, while promising that “no losses would be borne by the taxpayers.”
“Americans can have confidence in the security of the banking system,” Biden said. “Your deposits will be there when you need them.”