Yellen thinks banking system is ‘sound’

Treasury Secretary Janet Yellen is set to appear before the Senate Finance Committee to address President Biden’s budget proposal, and to reassure lawmakers and the public that the banking system in the US is still sound, and Americans can feel confident in their deposits, a week after the second-largest bank collapse in US history. This comes after two regional banks, Silicon Valley Bank and Signature Bank, failed in quick succession, leading to the protection of depositors’ money, even those holding uninsured funds exceeding $250,000, by federal deposit insurance.

The government’s decision to protect uninsured money has been criticised by some as a “bailout,” and both the Securities and Exchange Commission and the Justice Department have launched investigations into the Silicon Valley Bank collapse. During the hearing, lawmakers are expected to question whether the money committed to making depositors whole is a bailout and the degree to which taxpayers will be on the hook for the intervention and any new regulation impacting the banking system.

Yellen, a former Federal Reserve chair and past president of the San Francisco Federal Reserve during the 2008 financial crisis, will be the first Biden administration official to face lawmakers over the decision to protect depositors’ money. She has already stated on CBS’ “Face the Nation” that a bailout is not on the table, as the government is committed to ensuring that depositors’ savings remain safe, and they will not repeat the U.S. government’s response to the 2008 financial crisis, which led to massive government rescue policies to large U.S. banks.

The sudden collapse of the nation’s 16th-biggest bank and go-to financial institution for tech entrepreneurs has raised concerns, but Yellen has prepared testimony, stating that “the government took decisive and forceful actions to strengthen public confidence” in the U.S. banking system. Yellen will reassure the Committee that the banking system remains sound and that Americans can feel confident that their deposits will be there when they need them. The hearing is meant to address President Biden’s budget proposal, but it will inevitably turn to the government’s decision-making process to intervene in the bank failure.