Congress: “The banking system remains sound,” says Janet Yellen
Following the collapse of two banks last week that sent shockwaves through Wall Street, Treasury Secretary Janet Yellen made remarks to the Senate Finance Committee on Thursday in which she expressed confidence in the country’s banking system.
Since the government has agreed to intervene and protect depositors, Yellen provided assurances that the billions in savings and deposits at Silicon Valley Bank and Signature Bank would not be lost.
“I can reassure the committee members that our banking system is still sound and that Americans can have faith in the safety of their deposits,” Yellen said. The actions we took this week show how steadfastly we are committed to protecting depositors’ savings.
In order to assist the banks in repaying their depositors, Yellen also praised a Federal Reserve plan that will establish a new federal lending apparatus.
Federal regulators moved to strengthen the banking industry with emergency funds to aid those affected in the days following the collapses.
The Federal Reserve said it would lend the banks money to pay their account holders but would hold on to Treasury securities as collateral even if those assets had lost value. Last weekend, the Treasury Department and the Federal Deposit Insurance Corp. announced all deposits would be fully repaid.
Yellen has emphasized that the loans were only meant to support the banking system in the face of rising financial volatility worldwide and “help financial institutions meet the needs of all.”Critics have questioned how federal regulators didn’t notice trouble on the horizon at Silicon Valley Bank after the company’s profits took off due to huge deposits from giants in the tech industry.
Rumblings also were emerging on Capitol Hill that the Biden administration was trying to bail out wealthy investors, although earlier in the week Yellen said the government would not step in this time around to rescue banks as it did during the 2008 financial crisis.
Yellen said the current plan ensures bank customers will continue to have access to their money to pay bills and employees, while only shareholders and investors would be exposed to losses.
“Importantly, no taxpayer money is being used or put at risk with this action,” Yellen said, noting that emergency funds to repay depositors were taken from federal bank fees.