Even though American financial institutions and European agencies had just launched new rescue measures in the wake of the second-largest bank collapse in U.S. history, Treasury Secretary Janet Yellen issued firm, cheerful assurances to alarmed bank depositors and investors on Thursday.
At a Senate hearing on Capitol Hill, under intense, at times hostile questioning, Yellen assured senators that the US banking system “remains solid” and that people “may feel secure” about the security of their accounts.
Her comments were an attempt to reassure the markets that there would be no further fallout from the failure of Silicon Valley Bank in California and Signature Bank in New York amid growing worries about the global financial system’s stability.
By the time she finished testifying, First Republic Bank had received a $30 billion emergency deposit infusion from 11 banks, according to Treasury.
Hours earlier, the second-largest lender in Switzerland, Credit Suisse, acquired a loan guarantee from the Swiss central bank for up to $50 billion.
On hearing about the rescue, Wall Street rose.
Republican lawmakers blamed Democratic President Joseph Biden’s administration heavily for the issues.
Sen. Mike Crapo of Idaho stated that “the reckless tax and spend program that was driven through Congress” was a factor in the record-breaking inflation that the Federal Reserve is now trying to offset by raising interest rates. And those rising rates have created issues for banks and ordinary people.
The Republicans also questioned Biden’s claims that the cost of making depositors whole wouldn’t be borne primarily by taxpayers.
But she acknowledged that “we need to evaluate closely what happened to spark these bank failures and examine our laws and supervision,” Yellen rejected that possibility. She maintained the government’s claim that Silicon Valley and Signature would not require taxpayers to foot the bill for uninsured money protection.
The decision to protect uninsured money at the two collapsed regional banks, a move some have characterized as a bank “bailout,” was brought up in front of legislators for the first time by the Treasury secretary.
Yellen said that “the government took decisive and vigorous efforts to strengthen public confidence” in the American financial system. “I can reassure the committee members that our banking system is still solid and that Americans may have faith in the safety of their savings.”
Worries that banks may collapse under the weight of the fastest interest rate increases in decades—additions designed to tamp down increasing consumer price inflation—have sent markets worldwide into a tailspin this week.
Silicon Valley Bank, a Santa Clara, California-based institution, failed in less than a week due to depositors’ hasty withdrawals of funds amid concern about the institution’s well-being.
Then, authorities met over the weekend and declared that Signature Bank, based in New York, had collapsed. They claimed that government deposit insurance would protect all depositors, including those who held uninsured funds worth more than $250,000.
Since then, investigations into the collapse of Silicon Valley Bank have been opened by the Justice Department and the Securities and Exchange Commission, and President Joe Biden has urged Congress to tighten regulations on local banks.
Karine Jean-Pierre, the press secretary for the White House, said on Thursday that while there are things the government can do to address the problem, the actual action is required. Congress needs to act.”