Yellen seeks to reassure US legislators after bank collapse

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The head of the treasury tells lawmakers that clients “can be sure their deposits will be there when they need them.”

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United States Treasury Secretary Janet Yellen sought to reassure US lawmakers and citizens that the country’s banking system remains “healthy” after the second-biggest banking collapse in its history.

Yellen on Thursday became the first official in the Joe Biden administration to clash with lawmakers over a decision to protect uninsured money in two bankrupt regional banks, part of a series of moves that Washington claims are not a bailout.

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“I can assure committee members that our banking system is sound and that Americans can be confident that their deposits will be there when they need them,” Yellen said at a Senate Finance Committee hearing.

“The actions this week demonstrate our strong commitment to ensuring that our financial system remains strong and savers’ savings remain safe,” she said.

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The hearing comes just days after the collapse of California’s Silicon Valley Bank, the 16th-largest US bank and financial institution for technology entrepreneurs, after depositors rushed to withdraw money out of concern about the bank’s health.

The rush created liquidity risks, which meant the bank could not meet depositor withdrawal requests. The authorities closed the bank on Friday.

Regulators then rallied over the weekend and announced that New York-based Signature Bank, which has almost a quarter of its deposits in the crypto sector, has also collapsed.

Since then, the Department of Justice and the Securities and Exchange Commission have launched investigations into the collapse of the Silicon Valley bank. The authorities have assured all depositors, including those with more than $250,000 in uninsured funds, that they will be protected by federal deposit insurance.

The collapse has rekindled debate over deregulation of the US financial industry and government intervention.

Faced with pressure from the powerful technology industry, Washington on Sunday took a series of emergency measures to boost confidence in the banking system. The move appears to have halted any wider bank run.

“First, we worked with the Federal Reserve and the FDIC. [Federal Deposit Insurance Corporation] to protect all depositors of the two bankrupt banks,” Yellen told lawmakers on Thursday.

“Secondly, the Federal Reserve is providing additional support to the banking system through a new lending facility,” she said. “This will help financial institutions meet the needs of all their contributors.”

Yellen added: “Shareholders and debt holders are not protected by the government. It is important to note that no taxpayer money is used or put at risk in connection with this action.”

However, Senator Mike Crapo said he was “concerned about the precedent for guaranteeing all deposits and the market’s expectations going forward.”

Speaking on CBS’s “Face the Nation” on Sunday, Yellen said financial aid was out of the question.

“We’re not going to do this again,” she said, referring to the US government’s response to the 2008 financial crisis, which led to a massive government bailout of major US banks.

Earlier this week, Biden also tried to reassure Americans.

The US president told reporters on Monday that he would seek to bring those responsible to justice and push for better oversight and regulation of the big banks, and promised that “taxpayers will not suffer any losses.”

“Americans can rest assured that the banking system is safe,” Biden said. “Your deposits will be there when you need them.”

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