Treasury Secretary Janet Yellen assured legislators on Thursday that the banking system “remains sound” and that depositors’ assets “remain safe” despite the volatility the banking sector is now experiencing as a result of Silicon Valley Bank’s failure.
In prepared remarks before the Senate Finance Committee, Yellen stated, “I can assure the members of this Committee that our banking system remains sound, and that Americans may feel confident that their deposits will be there when they need them.
She said, “This week’s efforts underscore our strong determination to ensure that depositors’ savings stay safe.” Highlighting the actions regulators made in reaction to Silicon Valley Bank’s (SVB) bankruptcy, she said:
The Fed also established a loan facility to ensure that other financial institutions confronted with bank runs can meet depositor withdrawal demands without having to lose money by selling Treasury notes or other assets due to sharply rising interest rates. The problem that led to the failure of SVB and Signature banks was centred on these deals.
Despite the rescue measures, several regional banks’ stocks have recently fallen, and Americans’ internet searches for “is my money safe?” have increased as a result of their concern that their bank may be the next to fail.
What safeguards depositors against bank runs?
Sen. James Lankford, a Republican from Oklahoma, expressed fear that community banks in his state wouldn’t receive the same crisis aid that protected SVB depositors.
According to Yellen, other banks would only get the same assistance loans if regulators found that failing to shield uninsured depositors from losses would put the financial system in danger.
According to Lankford, this encourages depositors to transfer funds from smaller banks to larger ones whose financial woes pose a greater threat to the financial system.