Uninsured Chinese depositors in the failed Silicon Valley bank are likely to be recovered by the special scrutiny of U.S. banks funding the Biden administration-managed bailout, Treasury Secretary Janet Yellen told lawmakers on Thursday.
The government’s emergency intervention at the SVB last week drew criticism from several members of the Senate Finance Committee, including Senator James Lankford, an Oklahoma Republican, who pressured Ms Yellen over whether his state’s community banks would reimburse Chinese citizens and businesses with accounts in the california bank.
Mr Lankford cited public reports that some Chinese investors in SVB have ties to the Chinese Communist Party.
“Will my Oklahoma banks pay a special tax to bail out Chinese investors from Silicon Valley Bank?” he asked.
Ms Yellen replied: “Uninsured investors get well in this bank. I suppose that could include foreign depositors, but I don’t think there is any legal basis to discriminate between them [the] uninsured.”
With apparent sarcasm, Mr. Lankford noted that the government had promised that US taxpayers would not foot the bill for the bank bailout.
“I’m sure my bankers will be very excited to learn that they no longer pay taxes and their banks no longer pay taxes,” he said. “All banks derive their income from interest rates and fees and such to their account holders, which means every Oklahoma will be paying higher fees in their community banks.”
Ms. Yellen responded, “If we have a banking system collapse and its economic fallout, it will have a very serious impact on Oklahoma’s banks, which will also be threatened.”
She said it was up to the Federal Deposit Insurance Corp. to determine which banks pay the special assessment to the Federal Deposit Insurance Fund.
Regulators shut down the SVB last Friday after depositors attempted to withdraw $42 billion in one day, fearing it was on shaky financial footing. The bank, which catered to high-tech firms and venture capitalists, was the 16th largest in the US
President Biden said investors in SVB stock won’t get their money back, but individuals and companies that put their money in the bank will get it all back.
Signature Bank in New York was also closed last week. Officials blamed similar problems hitting SVB, including the bank’s long-term debt, which fell in value when the Federal Reserve hiked interest rates eight times last year to curb high inflation.
According to the bank’s annual report, SVB had $13.9 billion in foreign deposits that were not subject to federal or state insurance coverage. The bank was popular with Chinese start-ups and private equity firms, and the SVB maintained an office in Beijing to facilitate business with Chinese clients.
Ms Yellen testified Thursday that the country’s banking system “remains healthy” and that Americans shouldn’t worry about their deposits. She said the Treasury Department, the Federal Reserve and the FDIC have taken “decisive and vigorous action to increase public confidence” in the banking system.
“Americans can rest assured that their deposits will be there when they need them,” she said.
The administration worked out a deal last weekend to ensure depositors have access to their money beyond the normal $250,000 insurance limit.
The Justice Department and the Securities and Exchange Commission are investigating the bank’s collapse.
Senator Marsha Blackburn, a Tennessee Republican, echoed Mr. Lankford’s concern that community banks would pay to bail out SVB customers.
She asked Ms Yellen to provide an estimate of how much it would cost “if you end up insuring everyone’s bail”.
“Do you see this as a step toward nationalizing the banking system?” the lawmaker asked Ms. Yellen.
“Absolutely not,” Ms. Yellen replied. “I see this as a step to contain the contagion that could arise from the collapse of these banks, which would put community banks across the country at great risk of run.”
In a letter to Ms. Yellen, Senator Marco Rubio, a Florida Republican, urged her to prioritize U.S. competition with China in handling SVB intervention payouts. He called on the Treasury Department to ensure that hostile regimes and companies under their jurisdiction do not benefit from the bank’s collapse.
“As the Federal Deposit Insurance Corporation (FDIC) continues to work to conduct an auction of the SVB, I urge the Treasury Department to ensure that none of its assets end up in the hands of hostile foreign adversaries,” Mr. Rubio wrote.
Critics have dubbed the government’s bailout plan a bailout.
Republicans, including Idaho Senator Michael Crapo, pressed Ms Yellen whether the bank was facing a liquidity crisis as its long-term debt fell in value after the Fed’s series of rate hikes to fight inflation.
Ms Yellen agreed that the bank’s long-term investments had “lost market value” due to interest rate hikes. However, she said that the government’s deficit spending is not a major cause of inflation.
Several senators from both parties questioned why federal and state regulators didn’t recognize SVB’s liquidity problems before it was too late.
Senator Tim Scott, a South Carolina Republican, has criticized proposals to introduce stricter regulations – “in other words, for banks that have made responsible business decisions and have not failed.”
Senator Mark Warner, a Virginia Democrat, said policymakers should consider ways to prevent people on social media from causing a bank run, calling the SVB collapse “the first internet-driven run in history.” “.
Ms Yellen replied: ‘This is really a threat to the banks. In such situations, contagion can occur and other banks can then get into the same kind of rush, which is something we want to avoid at all costs.”
Lawmakers also tangled with Ms Yellen over the government’s debt ceiling showdown with House Republicans. She said Congress risks economic “disaster” if lawmakers fail to raise the nation’s borrowing limit by early summer.
She criticized a House GOP plan to “prioritize” which bills will be paid by the federal government.
“There’s a reason finance ministers from both parties have rejected this incredibly risky and dangerous idea,” she said. “Prioritization… is under a different name by default. We have to pay our bills. It is simply a recipe for economic and financial disaster.”
Source : www.washingtontimes.com