Taxpayers will NOT foot the bill for Silicon Valley Bank’s collapse, Treasury Secretary insists: Janet Yellen promises US banking is ‘sound’ during grilling in the Senate
- ‘On Monday morning, customers were able to access all of the money in their deposit accounts so they could make payroll and pay the bills,’ Yellen said
- On Sunday night the Treasury, Federal Reserve and FDIC announced it would protect all SVB deposits, even those beyond the $250,000 limit
- As some on the left push for new banking regulations, moderates and some Republicans are laying blame on regulators
Treasury Secretary Janet Yellen insisted the U.S. 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 meant to calm jittery depositors and investors, the secretary insisted the government’s emergency measures were successful in stabilizing the banking sector.
‘On Monday morning, customers were able to access all of the money in their deposit accounts so they could make payroll and pay the bills,’ Yellen said.
‘This week’s actions demonstrate our resolve and commitment to ensure that our financial system remains strong and that depositors savings remain safe.’
Treasury Secretary Janet Yellen insisted the U.S. 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 it would protect all SVB deposits, even those beyond the $250,000 limit, prompting criticisms from Republicans and some Democrats who saw it as a bailout.
But Yellen insisted ‘no taxpayer money is being used or put at risk’ as the money will be paid out through the FDIC insurance fund.
But most taxpayers are bank depositors, and a portion of their deposits goes toward the FDIC insurance fund, and that money is being used to pay off depositors at both Silicon Valley Bank and Signature bank.
The Treasury’s preemptive pledge of $25 billion in taxpayers’ money to help other institutions cover a rush of withdrawals has also raised eyebrows. This newly-announced Bank Term Funding Program offers one-year loans to banks who offer ‘high-quality securities’ as collateral.
Yellen insisted ‘no taxpayer money is being used or put at risk’ as the money will be paid out through the FDIC insurance fund
The catch for the taxpayer is that the Treasury will value the securities used as collateral ‘at par’ – i.e., what they were purchased for, rather than what they’re worth today, which in most cases is less. That means if banks tap into the fund but can’t pay the debt, the Treasury (and the taxpayer) could be left with a huge shortfall.
As some on the left push for new banking regulations and bringing back Dodd-Frank restrictions that were undone in 2018, moderates and some Republicans are laying blame on regulators.
Sen. John Cornyn, R-Texas, noted during the hearing that arguments that bank regulators are more concerned with managing climate risk than supervising ‘have a point.’
‘Where were the regulators?’ asked Sen. Mark Warner, D-Va.
Sen. Mike Crapo, ranking member on the committee, said he was ‘concerned about the precedent of guaranteeing all deposits and the market expectation expectation moving forward.’
He called the move a ‘moral hazard’ that, like inflation is ‘not easily contained.’
Crapo also said inflation played a major role in the current situation as banks mismanaged rising interest rate risk.
Yellen did not deny his assertion. ‘My understanding is the bank, to meet liquidity needs, had to sell assets that it had expected to hold to maturity given the interest rate increases … they had lost market value.’
