Taxpayers will NOT foot the bill for Silicon Valley Bank collapse, Treasury Secretary insists: Janet Yellen promises US bank is ‘sound’ during Senate grills
- “Clients were able to access all the money in their deposit accounts on Monday morning so they could do payroll and pay bills,” Yellen said.
- On Sunday evening, the Treasury, Federal Reserve and FDIC announced that they would protect all SVB deposits, even those over the $250,000 limit.
- While some on the left push for new banking regulations, moderates and some Republicans blame regulators
Treasury Secretary Janet Yellen has insisted that the US banking system is “safe” and “sound” in her first public testimony since the fall of Silicon Valley Bank before the Senate Finance Committee.
In words intended to calm nervous depositors and investors, the secretary insisted that the government’s emergency measures had succeeded in stabilizing the banking sector.
“Clients were able to access all the money in their deposit accounts on Monday morning so they could do payroll and pay bills,” Yellen said.
“This week’s actions demonstrate our determination and commitment to ensuring our financial system remains strong and depositors’ savings remain safe.”
Treasury Secretary Janet Yellen has insisted that the US banking system is “safe” and “sound” in her first public testimony since the fall of Silicon Valley Bank before the Senate Finance Committee.
On Sunday night, the Treasury, Federal Reserve and FDIC announced they would protect all SVB deposits, even those over the $250,000 limit, drawing criticism from Republicans and some Democrats who saw it as a plan safety.
But Yellen insisted that “no taxpayer money is used or put at risk” because the money will be paid through the FDIC insurance fund.
But most taxpayers are bank depositors, and a portion of their deposits goes to the FDIC insurance fund, and that money is used to reimburse depositors at Silicon Valley Bank and Signature Bank.
The Treasury’s precautionary pledge of $25 billion in taxpayer money to help other institutions cover a run on withdrawals has also raised eyebrows. This recently announced bank term financing program offers one-year loans to banks that offer “high quality securities” as collateral.
Yellen insisted that “no taxpayer money is used or put at risk” as the money will be paid out through the FDIC insurance fund
The snag for the taxpayer is that the Treasury will value the securities used as collateral “at par” – that is, what they were bought for, rather than what they are worth today, which in most cases is lower. This means that if the banks dip into the fund but cannot pay the debt, the Treasury (and the taxpayer) could end up with a huge shortfall.
While some on the left are pushing for new banking regulations and bringing back Dodd-Frank restrictions that were rolled back in 2018, moderates and some Republicans are blaming regulators.
Sen. John Cornyn, R-Texas, noted during the hearing that arguments that banking regulators are more concerned with managing climate risk than oversight “are right.”
“Where were the regulators? asked Sen. Mark Warner, D-Va.
Senior committee member Senator Mike Crapo said he was “concerned about the precedent of guaranteeing all deposits and market expectations going forward.”
He called the move a “moral hazard” which, like inflation, “is not easily controlled.”
Crapo also said inflation was playing a major role in the current situation as banks mismanaged the risk of rising interest rates.
Yellen did not deny his assertion. “From what I understand, the bank, to meet its liquidity needs, had to sell assets that it expected to hold until maturity given the rise in interest rates. …they had lost their market value.”
