Treasury Secretary Janet Yellen said the U.S. “banking system is sound” just days after the collapse of Silicon Valley Bank and Signature Bank.
“This week the government took decisive and forceful actions to stabilize and strengthen public confidence in our financial system,” Yellen said before the Senate Finance Committee on Thursday. “First, we worked with the Federal Reserve and [Federal Deposit Insurance Corp.] to protect all depositors of the two failed banks.”
“On Monday morning, customers were able to access all of the money in their deposit accounts so they could make payroll and pay the bills. Shareholders and debt holders are not being protected by the government,” Yellen added. “Importantly, no taxpayer money is being used or put at risk with this action. Deposit protection is provided by the Deposit Insurance Fund, which is funded by fees on banks.”
The California-based bank failed less than a week ago “after depositors rushed to withdraw money amid anxiety over the bank’s health,” The Associated Press reported. On Sunday, the New York-based Signature Bank also failed, an event that represents “the third largest failure in U.S. banking history,” Reuters reported.
“Second, the Federal Reserve is providing additional support to the banking system with the new lending facility. This will help financial institutions meet the needs of all of their depositors,” Yellen said.
The committee called Thursday’s hearing in order to discuss the Biden administration’s March 9 budget proposal for fiscal year 2024.
Republicans in the House Freedom Caucus presented their alternative plan to “shrink Washington” and “grow America” last week.
Yellen added:
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.
This week’s actions demonstrate our resolute commitment to ensure that our financial system remains strong and the depositors’ savings remain safe.
The Federal Reserve and FDIC will cover all depositors’ money at both Signature Bank and Silicon Valley Bank, the nation’s top regulators announced Sunday. The FDIC is normally responsible for covering deposits up to $250,000, ensuring that most small businesses and individuals are financially protected from a collapse.
In this case, however, the FDIC is going beyond that $250,000 cap to cover every deposit in the banks, regardless of the amount.
President Joe Biden spoke on Monday about the collapse of both banks.
“On Friday, the government regulator in charge, the FDIC, took control of Silicon Valley Bank’s assets. And over the weekend, it took control of Signature Bank’s assets,” the president said at the White House.
Biden added that “all customers who had deposits in these banks can rest assured—I want to—rest assured they’ll be protected and they’ll have access to their money as of today. That includes small businesses across the country that banked there and need to make payroll, pay their bills, and stay open for business.”
“No losses will be—and I want—this is an important point—no losses will be borne by the taxpayers. Let me repeat that: No losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund,” Biden said.
Peter St Onge, a research fellow in economics at The Heritage Foundation, briefly discussed Biden’s Monday remarks, and responded to the question of whether Americans should “feel confident or is this just the first domino to fall in a possible coming financial crisis.”
“In the banking system itself, I think that people can be confident. For better or for worse, they can bail out an absolutely unlimited number of financial institutions,” St Onge told The Daily Signal earlier this week. “That converts into inflation, potentially catastrophic inflation, very, very high inflation, we might see double-digit or higher inflation. So it is coming out of your pocket.”
“However, in terms of the actual financial system collapsing, the only way that could happen is if they are absolutely incompetent in Washington,” St Onge said. “They know how to deal with bank failures, they cause them all the time, and they know how to work them out without crushing the system.”
Virginia Allen contributed to this report.
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