Washington – Treasury Secretary Janet Yellen on Thursday attempted to quell concerns in Congress that this would happen despite the Collapse of two banks Nonetheless, the country’s banking system remains strong over the past few days and consumer jitters about the state of the financial services sector.
In her testimony before the Senate Treasury Committee, Yellen touted the “determined and vigorous action taken by the administration to bolster public confidence in our banking system” after Silicon Valley Bank abruptly failed less than a week ago and was taken over by the Federal Deposit Insurance Corporation (FDIC).
“I can assure the members of the committee that our banking system is healthy and that Americans can be confident that their deposits will be there when they need them,” she said. “This week’s actions demonstrate our determination to ensure depositor savings remain strong and depositor savings remain safe.”
In response to the failure of California-based Silicon Valley Bank, federal regulators rushed to make a plan increase public confidence in the soundness of the financial system and limit spillovers. The Biden administration announced Sunday outlined the emergency measures that would be needed to shore up the banking system, including ensuring depositors with accounts at Silicon Valley Bank have access to all of their money.
Yellen, in her opening comments, highlighted the Treasury Department’s cooperation with the Federal Reserve and the FDIC to protect all depositors, reiterating that taxpayers wouldn’t get off Silicon Valley Bank Investors.
“Customers could access all the money in their deposit accounts so they could do payroll and pay the bills,” Yellen said, stressing that investors in those banks won’t fare so well. “Shareholders and debtors are not protected by the government. It is important that no tax money is used or endangered in this campaign. Deposit protection is provided by the Deposit Insurance Fund, which is funded by bank fees.”
The plan, introduced by Yellen and senior bank officials in the Biden administration, also included a new Federal Reserve lending facility called the Bank Term Funding Program. Yellen told senators the program will “help financial institutions meet the needs of all of their depositors.”
Still, Senator Ron Wyden, the committee’s chairman, acknowledged that last week’s events in the banking sector have worried Americans, saying it underscores the need for Congress to raise or suspend the debt limit.
“Nerves are certainly frayed at this moment,” the Oregon Democrat said in his opening remarks. “One of the most important steps Congress can take now is to ensure that there is no doubt as to the full confidence and credit of the United States. That means paying the bills that have accrued to both party presidents and taking a default off the table.”
The 40-year-old Silicon Valley Bank, the 16th largest bank in the US, catered primarily to the technology industry and was used by many startups and venture capital firms. It is the largest financial institution to collapse since Washington Mutual collapsed at the height of the financial crisis in 2008.
In unveiling their contingency measures in response to the Silicon Valley bank shutdown, federal bank officials also announced that a second institution, Signature Bank of New York, was taken over by state regulators on Sunday.
Yellen said the Silicon Valley bank was forced to close after depositors withdrew money last week over concerns about its balance sheet — in what Senator Mark Warner, a Virginia Democrat, said could mark “the first Internet-driven run in history.”
“It was heavily reliant on uninsured deposits and there was a massive withdrawal of deposits that created liquidity problems,” she said.
Yellen said US financial authorities intervened amid the aftermath of the Silicon Valley bank collapse and declared a systemic risk exception to protect all depositors, recognizing the risk of contagion.
“No matter how strong capital and liquidity regulation, if a bank has an overwhelming rush, spurred on by social media or whatever, so that deposits are draining at this rate, a bank can be in danger of failing,” she said .
The circumstances that led to the collapse of two banks within a few days are likely to be the focus of Yellen’s appearance before the finance committee, alongside inflation and the debt ceiling.
The Budget Office of Congress estimates The US could default on its debt as early as July if Congress doesn’t remove or suspend the debt ceiling and trigger a high-stakes fight between President Biden and the Republican majority in the House of Representatives.
As the White House presses Congress to authorize an unconditional increase in the debt limit, House Speaker Kevin McCarthy and GOP lawmakers have said any deal must be accompanied by cuts in federal spending.
Yellen told senators that Mr. Biden was ready to discuss government spending limits, but stressed that spending cut negotiations should be separated from the debt limit fight.
“The debt ceiling simply needs to be raised, and jeopardizing the full confidence and creditworthiness of the United States and threatening economic and financial disaster is not an acceptable requirement,” she said.
On inflation, Yellen said in her opening remarks that there had been some moderation in headline inflation, but “more needs to be done”. However, inflation cooled off in February remains stubbornly high, at 6%. The Fed will soon have to decide whether to keep raising interest rates to curb inflation, or to ease up because of the pressure higher interest rates are putting on the banking industry.
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Source : news.yahoo.com