Treasury Secretary Janet Yellen said Thursday that Americans should remain confident in the stability of the banking system but clarified that regulators’ decision to backstop all deposits at the two lenders that failed over the past week was an exception to the norm.
Testifying before the Senate Finance Committee, Yellen said authorities invoked the “systemic risk exception” to backstop all funds, including those that exceeded the Federal Deposit Insurance Corp.’s standard $250,000 limit, at Silicon Valley Bank and Signature Bank when they took over and shut down both lenders within days of each other.
A bank “only gets that treatment” if regulators determine it meets certain criteria. As a result, Yellen said, depositors at other banks may not be guaranteed similar protections.
Yellen appeared before lawmakers Thursday as part of scheduled testimony to address President Joe Biden’s fiscal year 2024 budget request. But the hearing coincided with tumult in global markets over fears about a potential financial crisis, and she used the opportunity to reassure Wall Street and ordinary bank customers “that our banking system remains sound and that Americans can feel confident that their deposits will be there when they need them.”
“This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe,” she said.
Asked by Sen. James Lankford, R-Okla., whether all deposits at Oklahoma community banks would now be fully insured, Yellen said “a bank only gets that treatment” under the systemic risk exception rule, which requires two-thirds majority votes of the boards of the Federal Reserve, the FDIC and the Treasury secretary in consultation with the president.
During the hearing, Yellen also addressed inflation, which she said remains the Biden administration’s No. 1 economic concern even as it continues to post incremental declines. February’s 6% level remains well above the Fed’s 2% target.
“The president is doing all that he can — through the Inflation Reduction Act, lowering the cost of prescription drugs, lowering the cost of health care and using the strategic petroleum reserve — to try to lower and address higher gas and energy costs for Americans,” Yellen said.
Financial markets notched some improvement after a pummeling during the previous day’s session. The partial recovery followed reports that two embattled banks, the Swiss lending giant Credit Suisse and U.S. regional bank First Republic, could be receiving lifelines.
The upturn followed a pair of media reports, unconfirmed by NBC News, that First Republic was in talks with prospective financial backers. The developments came on the heels of Credit Suisse’s announcement earlier Thursday that it would borrow $54 billion from Switzerland’s central bank.