Treasury Secretary Janet Yellen was set to speak to the Senate Finance Committee Thursday and tell its members that, despite last week’s pair of bank collapses, the U.S banking system “remains sound.”
Yellen will be the first official from the Biden Administration to speak to Congress after Friday’s Federal Deposit Insurance Corporation (FDIC) takeover and shutdown of Silicon Valley Bank (SVB) in an effort to protect deposits.
On Monday—one day after the collapse of a second regional bank, Signature of New York—President Biden spoke from the White House to try to reassure the world of the resilience of the U.S. banking system.
Biden said that customer deposit accounts would be made whole, including those that exceed the $250,000 guaranteed insured by the FDIC.
“No losses will be borne by the taxpayers,” the President said. “Instead the money will come from the fees the banks pay into the deposit insurance fund.” He added that the management of the two banks would be fired and that investors who “knowingly took a risk” would not be protected.
SVB and Signature were the second and third largest bank collapses, respectively, after Washington Mutual’s failure amid the 2008 financial crisis that led to the Great Recession.
In prepared testimony that was released before her Senate appearance, Yellen said, “The government took decisive and forceful actions to strengthen public confidence” in the U.S. banking system. She added, “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.”
Lawmakers are likely to ask whether the funds to make depositors whole is a bailout, whether taxpayers will be on the hook to any degree and whether there’s a possibility of new banking regulations on the horizon.
The Department of Justice and the Securities and Exchange Commission are each separately investigating the collapse of SVB, whose vast majority of depositors were from the tech industry, many of them start-ups.
On Sunday Yellen, the former Chair of the Federal Reserve, described the Fed’s raising of interest rates to combat inflation as the core source of SVB’s problems. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.
