Janet Yellen says US banking system ‘remains sound’ and Americans should be ‘confident’

Congress Budget (Copyright 2023 The Associated Press. All rights reserved.)
Congress Budget (Copyright 2023 The Associated Press. All rights reserved.)

Treasury Secretary Janet Yellen is set to tell Congress that the US banking system is “sound” and Americans can feel “confident” about their deposits a week after the second-largest bank collapse in the nation’s history.

Ms Yellen’s testimony before the Senate Finance Committee on Thursday will make her the first Biden administration official to face lawmakers over the decision to protect uninsured money at Silicon Valley Bank and Signature Bank, a move that some observers have criticized as a “bailout.”

“The government took decisive and forceful actions to strengthen public confidence” in the US banking system, Ms Yellen says in prepared testimony released before her appearance. “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."

In less than a week, Silicon Valley Bank, based in Santa Clara, California, failed after depositors rushed to withdraw money amid anxiety over the bank’s health. Then, regulators convened over the weekend and announced that New York-based Signature Bank also failed. They ensured all depositors, including those holding uninsured funds exceeding $250,000, were protected by federal deposit insurance.

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

Thursday's hearing is meant to address President Joe Biden's budget proposal, but it comes after the sudden collapse of the nation’s 16th-biggest bank and go-to financial institution for tech entrepreneurs.

While Ms Yellen will be prepared to talk about spending proposals, the hearing will inevitably turn to the government's decision-making process to intervene in the bank failure.

Lawmakers will likely question whether the money committed to make depositors whole is a bailout and question the degree to which taxpayers will be on the hook for the intervention and the possibility of new regulation impacting the banking system.

Ms Yellen said on CBS' “Face the Nation” last Sunday that a bailout was not on the table, stating, “we’re not going to do that again," referring to the US government's response to the 2008 financial crisis, which led to massive government rescue policies to large US banks.

Ms Yellen, a former Federal Reserve chair and past president of the San Francisco Federal Reserve during the 2008 financial crisis, was a leading figure in the resolution this past weekend, which was engineered to prevent a wider systemic problem in the banking sector.

"This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe,” she says in her Thursday testimony.