The U.S. banking system remains sound and Americans can feel confident that their deposits will be there when needed thanks to “decisive and forceful” actions taken after the inability of Silicon Valley Bank to fend off a run on deposits triggered its demise last week, Treasury Secretary Janet Yellen said Thursday.
In remarks to the Senate Finance Committee, Yellen said emergency measures unveiled Sunday by Treasury and other U.S. financial regulators to shore up public confidence in the banking system after the collapse of California-based Silicon Valley underscored its resolve to protect depositors.
“I can reassure 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,” Yellen said in the remarks.
“This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”
The comments were Yellen’s first to federal lawmakers since the weekend’s emergency measures to backstop depositors and enhance banking sector liquidity was greeted with both relief and astonishment on Capitol Hill, where Democrats control the Senate and Republicans hold the House of Representatives.
Yellen said Silicon Valley’s collapse was essentially an inability to meet depositor demands for their money after interest rate hikes by the Federal Reserve over the last year undercut the value of the bond investments relied upon to fund the customer withdrawals. She also noted the high level of uninsured deposits at Silicon Valley as an aggravating factor.
“There was a liquidity risk in this situation,” Yellen told the committee. “There will be a careful look at what happened in the bank and what initiated this problem, but clearly, the downfall of the bank, the reason it had to be closed, was that it couldn’t meet depositors’ withdrawal requests.”
She made no reference in the prepared remarks to the situation surrounding Credit Suisse, which saw its shares plunge on Wednesday before regulators pledged a liquidity lifeline to the flagship Swiss lender.
Yellen said Treasury worked with the Fed and the FDIC to protect all depositors of both banks and set up a new facility to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.
“Shareholders and debtholders are not being protected by the government. Importantly, no taxpayer money is being used or put at risk with this action,” she told the committee.