Treasury Secretary Janet Yellen sought to reassure Congress Thursday that the U.S. banking system remained “sound” after two large bank failures over the past week.[0] Yellen testified before the Senate Finance Committee on President Biden’s 2024 budget proposal, urging lawmakers to come together to address the debt limit “without conditions and without waiting until the last minute.”[1]
After Silicon Valley Bank suddenly shuttered last week and was assumed by the FDIC, Yellen highlighted the “decisive and forceful actions to strengthen public confidence in our banking system” taken by the government to rebuild trust in the banking system.[0]
“This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe,” she said, stressing that investors in those banks will not fare as well.[2] “Shareholders and debtholders are not being protected by the government. 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.”[3]
Data from the Federal Reserve shows inflation cooled in February, but remains stubbornly high, at 6%.[3] Yellen said the Biden administration’s “top economic priority remains bringing down inflation,” adding that they will “continue to build on the actions we’ve taken to expand supply and provide cost relief in areas like energy and healthcare.”[4]
Senator Mike Crapo of Idaho, the committee’s Republican, expressed concern over the precedent of guaranteeing all deposits and the market expectations moving forward, calling the federal rescue action a “moral hazard.”[5]
Yellen warned that if Congress fails to raise the debt limit, it could trigger “an economic and financial catastrophe” and urged lawmakers to “make sure there are no questions about the full faith and credit of the United States.”[3]
The Treasury Secretary also addressed the failure of Silicon Valley Bank and Signature Bank last weekend, saying that authorities had ensured all depositors, including those holding uninsured funds exceeding $250,000, were protected by federal deposit insurance.
The Justice Department and the Securities and Exchange Commission have since launched investigations into the Silicon Valley Bank collapse, with Yellen saying the Treasury Department along with other regulators intervened in the collapse “because of the recognition there can be contagion in situations like this and then other banks can then fall prey.[2]
0. “Yellen tells Congress that U.S. banking system is “sound”” Axios, 16 Mar. 2023, https://www.axios.com/2023/03/16/yellen-congress-us-banking-system
1. “Treasury Secretary Yellen Testifies Before Congress in Wake of Bank Failures” C-SPAN , 16 Mar. 2023, https://www.c-span.org/video/?526623-1/treasury-secretary-yellen-testifies-president-bidens-2024-budget-proposal
2. “Yellen Seeks to Reassure Congress on Banks Amid Oversight Angst” Yahoo Entertainment, 16 Mar. 2023, https://www.yahoo.com/entertainment/yellen-seeks-reassure-congress-banks-110000036.html
3. “Watch Live: Treasury Secretary Janet Yellen testifies before Senate Finance Committee” CBS News, 16 Mar. 2023, https://www.cbsnews.com/news/janet-yellen-congressional-testimony-today-banking-system-remains-sound-silicon-valley-bank-signature-bank-collapse/
4. “U.S. Treasury watching ‘a few banks’; Yellen repeats call for debt limit action” Seeking Alpha, 10 Mar. 2023, https://seekingalpha.com/news/3946519-us-treasury-watching-a-few-banks-yellen-repeats-call-for-debt-limit-action
5. “Yellen says U.S. banking system is ‘stable’ and deposits ‘remain safe’ following failure of SVB, Signature” CNBC, 16 Mar. 2023, https://www.cnbc.com/2023/03/16/svb-signature-bank-failures-yellen-says-us-banking-system-is-stable-and-deposits-remain-safe.html