Janet Yellen says US banking system ‘stays healthy’ and Americans should ‘be confident’

Treasury Secretary Janet Yellen told the Senate Treasury Committee on Thursday that the US banking system is “healthy” and Americans can be “confident” about their deposits after the second-largest banking meltdown in American history took place late last week.

Speaking at the start of a hearing to consider President Joe Biden’s budget proposal for the Treasury Department next fiscal year — the first appearance by an administration official in the Capitol since Mr. Biden said the Federal Deposit Insurance Corporation would protect uninsured money at Silicon Valley Bank and Signature Bank, a move some observers have criticized as a “bailout” – Ms Yellen said the decision shows the government’s “determination” to maintain Americans’ confidence in the US financial system.

“The government has taken decisive and vigorous action to increase public confidence in the US banking system,” Ms. Yellen said. “I can assure the members of the committee that our banking system remains sound and that Americans can be confident that their deposits will be there when they need them.”

The Treasury Secretary also stressed that “no taxpayer money” will fund backup for failed bank deposits, and said the Federal Reserve will “give additional support to the banking system” with a “new lending facility.”

“This will help financial institutions meet the needs of all their depositors,” she said.

In less than a week, Silicon Valley Bank, headquartered in Santa Clara, California, failed after depositors rushed to withdraw funds fearing for the health of the bank. Then regulators got together over the weekend and announced that New York-based Signature Bank also failed. They ensured that all depositors, including those holding over $250,000 in uninsured funds, are protected by federal deposit insurance.

The Justice Department and the Securities and Exchange Commission have since launched investigations into the collapse of the Silicon Valley bank.

Thursday’s hearing is set to deal with President Joe Biden’s budget proposal, but it comes after the sudden collapse of the country’s 16th-biggest bank and the top financial institution for tech entrepreneurs.

While Ms Yellen will be ready to speak on spending proposals, the hearing will inevitably turn to the government’s decision-making process to intervene in the bank failure.

Lawmakers are likely to question whether the money pledged to restore depositors is a bailout, and to what extent taxpayers will be on the hook for intervention and the possibility of new regulation affecting the banking system.

Ms Yellen said on CBS’s Face the Nation last Sunday that a bailout was not on the table, declaring “we will not do this again,” citing the US government’s response to the financial crisis of 2008, which led to massive government bailouts of major US banks.

Ms. Yellen, a former Federal Reserve Chair and former San Francisco Federal Reserve Chair during the 2008 financial crisis, was a leading figure in last weekend’s resolution designed to prevent a broader systemic problem in the banking sector.