Washington, Mar 16 (EFE).- Treasury Secretary Janet Yellen said Thursday that the United States’ banking system “remains sound” and that Americans can rest assured that their deposits will be there when needed.
In Yellen’s appearance before the Senate Finance Committee, initially scheduled for her to answer questions about the government’s new budget proposal, she defended the “decisive” steps the government took to contain the fallout from the collapse of Silicon Valley Bank and Signature Bank and stabilize the US banking system.
“First, we worked with the Federal Reserve and FDIC (Federal Deposit Insurance Corporation) to protect all depositors of the two failed banks,” Yellen said, recalling that on Monday morning SVB’s customers were able to access all of the money in their deposit accounts.
No taxpayer money was used or put at risk with that action because the funds used to safeguard deposits come from the fees that banks pay into the FDIC’s Deposit Insurance Fund, the treasury secretary said.
Additionally, the Federal Reserve announced Sunday that it will make additional funding available to eligible banks to ensure they are able to meet the needs of all their depositors.
The collapse of California-based SVB on March 10 following a bank run touched off fears of a new financial crisis, although many experts say that bank’s situation was unique because its customers were mainly start-ups and the venture capital firms that finance them.
Citing systemic risk, US regulators shut down New York-based Signature Bank, a major lender to crypto customers, two days later.
Zurich-based lender Credit Suisse on Thursday was forced to borrow $54 billion from the Swiss central bank after its share price hit a record low on the day before.
Many analysts expect the market turmoil will force the Federal Reserve, which has been laser-focused on bringing down high inflation, to bring an end to its current cycle of interest rate hikes next week.
The crisis also has shone a spotlight on the role played by bank regulators, with several lawmakers asking Yellen why they were unaware of SVB’s fragile situation.
“We need to look into what the regulators do, exactly what happened to create the problems that these two banks that failed faced, and make sure that our regulatory system and supervision is appropriately geared so that banks manage their risks to avoid problems of the type that these banks have suffered from,” Yellen said.
The Federal Reserve announced Monday that it will investigate its oversight of SVB and publish a report with its findings in early May.
Yet despite the doubts about how the banks were supervised, Yellen said no regulator can protect an institution from an “overwhelming run that’s spurred by social media or whatever,” referring to the liquidity crisis that forced regulators to seize SVB’s deposits, in what amounted to the biggest US bank failure since the 2008 financial crisis. EFE