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Treasury Secretary Janet Yellen will testify before the Senate Appropriations Committee Wednesday, where she is prone to face tough questions on the federal response to 2 bank failures earlier this month: California-based Silicon Valley Bank on March 10 and Recent York-based Signature Bank just two days later.
Based on prepared remarks, Yellen will tell lawmakers that within the hours after the banks collapsed, she and top Treasury officials determined that the situation posed a danger to “the broader banking system and the American economy” which merited emergency actions.
These included guarantees on uninsured deposits on the failed banks, and the creation of recent liquidity sources for smaller banks experiencing a rush of withdrawals.
Thanks largely to those actions, “aggregate deposit outflows from regional banks have stabilized,” Yellen told a bankers group Tuesday.
But while the trends are moving in the correct direction, the sum of money banks borrowed within the week ending March 15 from the Fed’s discount window set a latest record at $153 billion, in accordance with the Fed’s weekly report, a sum that means the banking sector shouldn’t be quite stable yet.
Each Democrats and Republicans in Congress have said they need to know whether uninsured deposits at banks that fail in the longer term might be covered the identical way they were at SVB and Signature.
Yellen and her deputies have to date said any blanket guarantee of uninsured deposits would require extraordinary circumstances, and certain an act of Congress.
There may be precedent for such an act: In March of 2020, Congress authorized the Federal Deposit Insurance Corporation to lift the $250,000 limit on insured deposits to be able to prevent bank runs triggered by pandemic conditions.
