US Treasury Secretary Janet Yellen is to tell members of the Senate Treasury Committee Thursday that the US banking system remains “healthy” as the impact of three bank failures in less than a week continues to be felt in financial markets and beyond.
“I can assure the members of the committee that our banking system remains sound and that Americans can be confident that their deposits will be there when they need them,” Yellen will tell the Senate ahead of a scheduled hearing on President Biden’s proposed budget. “This week’s actions demonstrate our determination to ensure depositors’ savings remain safe.”
On Sunday, Yellen joined Federal Reserve Chair Jerome Powell and FDIC Chair Martin Gruenberg in announcing that the government would roll back all deposits from the failed Silicon Valley bank following their confiscation last Friday.
“It is important that no taxpayers’ money is used or jeopardized in this campaign,” says Yellen. “Deposit protection is provided by the deposit protection fund, which is financed by bank fees.”
The Federal Reserve also said on Sunday that it would offer funds to banks through a new facility to ensure banks could meet all depositor withdrawals, essentially covering all deposits — both insured and uninsured — across the U.S. financial system would be secured.
Yellen’s prepared remarks will also reaffirm that the shareholders and creditors of failed banks will be protected by the government.
New York’s Signature Bank, which served clients in the cryptocurrency world, was also seized by regulators on Sunday. The third largest bank ever to fail in the US, Silicon Valley Bank is the second largest bankruptcy on record, eclipsed only by Washington Mutual in 2008.
Bond rating agency Moody’s downgraded the US banking system on Tuesday, asking six banks to downgrade.
U.S. Treasury Secretary Janet Yellen testifies before a U.S. House of Representatives Ways and Means Committee hearing on President Joe Biden’s fiscal year 2024 budget proposal on Capitol Hill in Washington, U.S. March 10, 2023. Portal/Evelyn Hockstein
Following these defaults and seizures, lawmakers have begun calling for an investigation into the collapse.
The story goes on
Top Democrat on the House Financial Services Committee, Rep. Maxine Waters (D-CA) on Tuesday told Yahoo Finance that a reduction in capital requirements was to blame for the collapse and said hearings will be held soon to better understand what went wrong.
Calling for the repeal of a 2018 law that relaxed capital requirements for smaller banks, Waters said everything was on the table, including reclaiming executive pay.
In the days since regulators instituted these emergency measures, markets have been exceptionally volatile as liquidity — the ability to enter and exit trades quickly — in US Treasuries has dried up.
The yield on 2-year Treasury bills, which is considered the closest proxy for expected Fed action, has moved more than 0.20% for five consecutive daysthe longest streak in over 40 years, according to the Bespoke Investment Group.
Yellen’s appearance on Capitol Hill comes as other regulators begin to lay the groundwork for investigating this week’s events, with SEC Chairman Gary Gensler telling reporters Wednesday afternoon that the SEC is probing money markets for vulnerabilities across the financial system to investigate.
“We look at the money market fund as a whole and the broader fund complex to see what risks they might have if a company gets distressed or if a company goes bankrupt or bankrupt,” Gensler said.
“This past week’s markets, the market installs — and I differentiate that from the companies — the market installs have been doing pretty well, but there’s a lot of volatility.”
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