Janet Yellen: The Banking System is Stable after the "Decisive" Actions taken
"The US banking system remains stable and Americans can feel confident that their deposits will be available when they are needed, thanks to the 'decisive and strong' action taken after Silicon Valley Bank's (SVB) failure to deal with the outflow of deposits at its end last week," Treasury Secretary Janet Yellen told the Senate Finance Committee, Reuters reported.
She also stressed that high inflation is currently "the number one economic problem".
Yellen said the emergency measures unveiled Sunday by the Treasury Department and other US financial regulators to bolster public confidence in the banking system after the collapse of California-based SVB underscored its determination to protect depositors.
"I can assure the members of the committee that our banking system is sound and that Americans can feel confident that their deposits will be there when they need them," she said.
"This week's actions demonstrate our strong commitment to ensure that depositors' savings remain safe," added the finance minister.
The comments were Yellen's first before federal lawmakers after the weekend's emergency measures to protect depositors and boost banking sector liquidity were met with both relief and surprise on Capitol Hill, where Democrats control the Senate and Republicans hold the House of Representatives.
Yellen said the SVB's collapse was essentially an inability to meet depositors' demands for their money after interest rate hikes by the Federal Reserve over the past year eroded (depreciated) the value of bond investments relied on to fund the customer withdrawals. She also noted the high level of uninsured deposits at SVB as an aggravating factor.
"There was a liquidity risk in this situation. It will be looked closely at what happened in the bank and what initiated this problem, but clearly the collapse of the bank, the reason it was closed, was that it could not meet the withdrawal requests to depositors," Yellen told US lawmakers.
She did not mention in her prepared remarks the situation surrounding Swiss bank Credit Suisse, whose shares tumbled on Wednesday before regulators and the Swiss National Bank promised a liquidity lifeline to the top lender.
Yellen also said the Treasury Department is working with the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) to protect all bank depositors and create a new mechanism to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.
"Shareholders and debtors are not protected by the government. It is important that taxpayers' money is not used or put at risk by this action," she stressed to the Senate Finance Committee.
On inflation, Janet Yellen noted that she believes high inflation is currently the "number one economic problem" the country must deal with, and indicated that it is a "top priority" for US President Joe Biden.
Yellen also said that "many factors have contributed to high inflation" and added that it was "critical" for the Federal Reserve to address the problem.
But she insisted she "strongly supports" President Biden's American Rescue Plan, a $1.9 trillion coronavirus stimulus package that Republicans say has fueled high inflation.
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