Treasury Secretary Janet Yellen reassured members of the Senate Finance Committee Thursday that the U.S. banking system remains sound and Americans can feel confident that their deposits will be there when they need them.[0] Yellen addressed the fallout after the collapse of Silicon Valley Bank and Signature Bank last weekend, which sent the financial industry spiraling into a panic.
Yellen said that in the future, uninsured deposits would only be covered in the event that a “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences,” which would be decided by a supermajority of the FDIC’s board members, Yellen, and the President.[1]
Senator Mike Crapo expressed his concern about the precedent of guaranteeing all deposits and the market expectation moving forward.[2] In response, Yellen stated, “That’s certainly not something that we’re encouraging.”[3]
Yellen said President Biden seeks a “responsible fiscal path” and that “this is a matter that he is very prepared to discuss and negotiate with Republicans, but it can’t be a condition for raising the debt ceiling. The debt ceiling simply must be raised, and to put at risk the full faith and credit of the United States and to threaten to cause an economic and financial catastrophe isn’t an acceptable requirement.”[4]
Republicans have refused to lift the debt ceiling until major budget cuts are made.[5] Last week, House Republicans presented a plan which would require the Treasury to give priority to payments on government debt and Social Security if the U.S. reaches its debt limit.[5] The measure has been turned down by the Democrats.[5]
Yellen admitted during the hearing that Chinese Communist Party-linked businesses that had deposits in Silicon Valley Bank (SVB) will be made whole by the American banking system.[6] She said, “Shareholders and debt holders 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.”[7]
The Treasury Secretary also spoke about the collapse of First Republic Bank, which was recently rescued by its rivals. She noted that customers were able to access all of the money in their deposit accounts so they could make payroll and pay the bills.[7]
Overall, Yellen sought to reassure lawmakers about the US banking system’s stability after the collapse of Silicon Valley Bank and trouble at Credit Suisse stoked fears of economic contagion.[8]
0. “US banking system is sound, insists Janet Yellen” The Times, 17 Mar. 2023, https://www.thetimes.co.uk/article/us-banking-system-is-sound-insists-janet-yellen-92mht9dmw
1. “Janet Yellen Addresses Tough Reality of Americans’ Money Amid Bank Panic” Newsweek, 16 Mar. 2023, https://www.newsweek.com/janet-yellen-addresses-tough-reality-americans-money-amid-bank-panic-1788353
2. “Yellen seeks to reassure US legislators after bank collapse” Al Jazeera English, 16 Mar. 2023, https://www.aljazeera.com/news/2023/3/16/yellen-seeks-to-reassure-us-legislators-after-bank-collapse
3. “Treasury Secretary Yellen says not all uninsured deposits will be protected in future bank failures” 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
4. “Rep Roy hints at defunding Treasury secretary after she refused to negotiate with GOP on debt ceiling” Fox News, 17 Mar. 2023, https://www.foxnews.com/politics/rep-roy-hints-defunding-treasury-secretary-after-she-refused-negotiate-gop-debt-ceiling
5. “Janet Yellen Trashes GOP Debt Ceiling Plan as “Recipe for Economic and Financial Catastrophe”” The New Republic, 14 Mar. 2023, https://newrepublic.com/post/171194/janet-yellen-gop-debt-ceiling-plan-recipe-economic-financial-catastrophe
6. “What Yellen told Congress means big trouble for your wallet in 3 key areas” Fox Business, 17 Mar. 2023, https://www.foxbusiness.com/politics/yellen-congress-big-trouble-wallet-key-areas
7. “Treasury Secretary Janet Yellen tells Senate panel nation’s “banking system is sound” after Silicon Valley Bank collapse” 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/
8. “Treasury boss Yellen says US banking system ‘remains sound’” New York Post , 16 Mar. 2023, https://nypost.com/2023/03/16/treasury-sec-yellen-to-say-us-banking-system-remains-sound-on-capitol-hill/