Treasury Secretary Janet Yellen speaks during a Senate Finance Committee hearing at the U.S. Capitol last Thursday. She delivered remarks to the American Bankers Association on Tuesday. Photo by Bonnie Cash/UPI |
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March 21 (UPI) -- Treasury Secretary Janet Yellen told the American Bankers Association on Tuesday that the government is prepared to protect all depositors if a bank fails as it did following the collapse of Silicon Valley Bank in California and Signature Bank in New York.
Yellen, addressing the association's summit in Washington, D.C., on Tuesday morning, said that the U.S. financial system is on solid footing. Silicon Valley Bank in California and Signature Bank in New York failed within days of each other, sending shockwaves through the market.
"The situation demanded a swift response," Yellen said of the bank failures and the Federal Deposit Insurance Corporation stepping in to guarantee all depositors regardless of amount. "In the days that followed, the federal government delivered just that: decisive and forceful actions to strengthen public confidence in the U.S. banking system and protect the American economy.
"Let me be clear: the government's recent actions have demonstrated our resolute commitment to take the necessary steps to ensure that depositors' savings and the banking system remain safe."
Yellen said the government took action recognizing that the banks, regardless of size, play a critical role in keeping the entire system balanced.
"Large banks play an important role in our economy, but so do small- and mid-sized banks," Yellen said. "These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses. They also increase competition in the banking sector, and often have specialized knowledge and expertise in the communities they invest in."
Yellen said the action government took to strengthen public confidence in the banking system helped to avoid the kind of panic that could have caused more depositors to remove their money.
"The steps we took were not focused on aiding specific banks or classes of banks," Yellen said. "Our intervention was necessary to protect the broader U.S. banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."
"I believe that our actions reduced the risk of further bank failures that would have imposed losses on the Deposit Insurance Fund, which is paid for through fees on insured banks."
Yellen said 11 banks announced $30 billion in deposits into troubled First Republic Bank last week, adding that it represented "a vote of confidence" in our banking system.
"We are continuing to monitor conditions closely," Yellen said. "My team and I have been in close communication with many of you, in addition to federal and state regulators, other market participants, and international counterparts."
Yellen said they are trying to find out why Silicon Valley Bank, which catered to tech startups, and Signature Bank, which was devoted to cryptocurrencies failed but it was important to find those answers.
"While we don't yet have all the details about the collapse of the two banks, we do know that the recent developments are very different than those of the Global Financial Crisis," Yellen said. "Back then, many financial institutions came under stress due to their holdings of subprime assets."
"We do not see that situation in the banking system today. Our financial system is also significantly stronger than it was 15 years ago. This is in large part due to post-crisis reforms that provided stronger capital standards, among other important improvements."
Yellen said the Treasury Department remains committed to making sure depositors will be protected during the current review of the banking system.
