WASHINGTON (NewsNation) — The nation’s largest banking system “remains sound” and Americans “can feel confident” about deposits, that’s what U.S. Treasury Secretary Janet Yellen told the Senate Finance Committee on Thursday.
A week after the second-largest bank collapse in U.S. history, Yellen will be the first Biden administration official to face lawmakers over the decision to protect uninsured money at two failed regional banks, a move that some observers have criticized as a bank “bailout.”
“The government took decisive and forceful actions to strengthen public confidence” in the U.S. banking system, 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.”
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.
All of this comes after Credit Suisse, one of the largest banks in Europe, disclosed problems in its financial reporting and said it would tap a $54 billion loan from Switzerland’s central bank.
This is the first major global bank to be given this type of lifeline since the 2008 recession, and it’s raising fears in the wake of the collapse of Silicon Valley Bank and Signature Bank.
In wake of the bank collapses, the news is raising fears about the stability of global financial systems and heightening recession fears, which were already high before the collapse.
Yellen made no reference Thursday in the prepared remarks as to the situation surrounding Credit Suisse.
The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) announced a series of emergency measures on Sunday after the failures of Silicon Valley Bank and Signature Bank threatened to trigger a broader financial crisis.
Yellen said Treasury worked with the Fed and the FDIC to protect all depositors of both banks and set up a new facility to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.
“Shareholders and debtholders are not being protected by the government. Importantly, no taxpayer money is being used or put at risk with this action,” she told the committee.
Meanwhile, the U.S.’s largest banks are seeing a huge influx of new customers after SVB’s meltdown, Reuters reported. Bank of America, Citigroup and JP Morgan Chase are working to accommodate all the new accounts, as clients rush their money away from mid-sized banks, and into big ones.
Lawmakers will likely question whether the money committed to making depositors whole is a bailout, the degree to which taxpayers will be on the hook for the intervention and the possibility of new regulations impacting the banking system.
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 U.S. government’s response to the 2008 financial crisis, which led to massive government rescue policies to large U.S. banks.
On Capitol Hill, it remains to be seen whether SVB’s collapse leads to any changes to the law, but there’s still frustration that while SVB isn’t being rescued with a taxpayer funded bank bailout — banks around the country may raise their user fees as a result of this and that cost could impact consumers.
President Biden called on Congress to take action. There are discussions about repealing a 2018 law that eased regulations on mid-sized banks like SVB. So far, those discussions don’t appear to be headed to passage any time soon.
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.
“This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe,” she says in her Thursday testimony.
The Associated Press contributed to this report.