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WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said on Wednesday that the U.S. banking system remained healthy and Americans could be confident their deposits were safe. Now present on all deposits.
Since emergency action with other regulators over the weekend to ensure depositors at Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O) don’t suffer losses in those bank failures, her In her first public statement, Yellen said that if that meant all uninsured deposits were insured, the U.S. Senate Finance Committee.
If the Federal Reserve, the Federal Deposit Insurance Corporation, and I, in consultation with the President, determine that uninsured depositors cannot be protected, she told Republican Senator James Lankford, I just get treated,” he said. It will create systemic risks and significant economic and financial consequences. ”
Her comments were the first to articulate the regulator’s view on the limitations of the weekend’s special guarantees that ensure tens of billions of dollars in uninsured deposits at Silicon Valley and Signature are not lost.
Ahead of the exchange, Yellen touted “decisive and strong” emergency measures taken on Sunday, which she said helped restore depositor confidence and prevented a broader crackdown at banks. .
“We can reassure committee members that our banking system is sound and Americans can be confident they will have money when they need it,” Yellen said.
“This week’s actions demonstrate a resolute commitment to keeping depositors’ savings safe.”
But it was clear that the FDIC insurance limit of $250,000 per depositor would still apply, and that future failures would have to pose similar risks to those seen with Silicon Valley and Signature.
In their case, Yellen said, “it is very likely that other banks will be seen as unsound and will be cracked down, and the consequences will be very serious.”
More than $9.2 trillion of U.S. bank deposits were uninsured at the end of last year, accounting for more than 40% of all deposits, according to US Central Bank data. These uninsured deposits are not evenly distributed across the country, according to FDIC data.
“I wasn’t on it”
Hearings set to discuss the Biden administration’s budget proposal provided the first public accounting by members of the band of bank supervisors who organized the bailout following Silicon Valley’s failure last Friday. Seized by regulators.
[1/2] U.S. Treasury Secretary Janet Yellen attends the House Ways and Means Committee hearing on President Joe Biden’s fiscal 2024 budget request at the Washington State Capitol, USA, March 10, 2023. REUTERS/Evelyn Hockstein/File Photo
Yellen said she first became aware of the SVB problem last Thursday, the day before regulators closed the bank.
Emergency measures have expanded beyond depositor backstops, including a liquidity boost in the Fed-backed banking sector. The move was greeted with both relief and surprise in Congress, where Democrats control the Senate and Republicans hold the House.
Several senators lamented that regulators failed to recognize vulnerabilities and demand changes before banks suddenly collapsed.
Republican Senator Charles Grassley told reporters outside the hearing that “this administration bears a great deal of responsibility for the bank failures we experienced,” California regulators said. added, “I didn’t realize it.”
Republican Senator Tim Scott has tried to accuse the Biden administration’s spending policies of fueling inflation and the Fed’s rapid rate hikes leading to the problem of eroding the value of the SVB’s bond holdings, Yellen claims. refused.
But the Treasury Secretary said inflation remains the “biggest economic problem” for the United States and that reducing it is President Joe Biden’s top priority, and the Fed will “play its part” in that effort. He added that it was necessary.
Some Democrats criticized the 2018 Republican-made law for lowering the threshold for “systemically important” banks requiring increased oversight.
Focus on stability
Yellen said Silicon Valley’s collapse was basically a failure to meet depositors’ funding needs after last year’s Fed rate hikes undercut the value of bond investments that depended on customer withdrawals. She also pointed to Silicon Valley’s high levels of uninsured deposits as a drag.
“There was liquidity risk in this situation,” Yellen told the committee. “We will look carefully at what happened at the bank and what caused this problem, but clearly the bank’s downfall, the reason it was forced to close, was its failure to meet depositor withdrawal requests. .”
Her testimony focused on the security of the U.S. banking system, surrounding Credit Suisse, whose shares plunged Wednesday before regulators promised a $54 billion liquidity lifeline to the Swiss flagship bank. I didn’t mention any difficulties.
Yellen said regular stress tests on U.S. banks help identify potential problems, but supervisory stress tests now look for capital shortfalls rather than liquidity issues. pointed out.
“We are very focused right now on stabilizing the banking system and increasing trust. I think we have time,” she said.
“For now, however, we hope to restore confidence in the health of U.S. banks.”
Additional reporting by Daniel Barnes, Andrea Charal, and Richard Cowan.Edited by Kenneth Maxwell, Nick Zieminski, Margherita Choi, Paul Simao
Our standards: Thomson Reuters Trust Principles.
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