WASHINGTON — Treasury Secretary Janet Yellen sought to reassure markets and lawmakers on Thursday that the federal government is committed to protecting U.S. bank deposits following the failure of Silicon Valley Bank and Signature Bank over the weekend.
“Our banking system stays sound and Americans can feel confident that their deposits will likely be there after they need them,” Yellen said.
Under questioning, nevertheless, Yellen admitted that not all depositors will likely be protected over the FDIC insurance limits of $250,000 per account as they did for patrons of the 2 failed banks.
A Silicon Valley Bank office is seen in Tempe, Arizona, on March 14, 2023.
Rebecca Noble | AFP | Getty Images
Yellen has been at the middle of emergency federal efforts this past week to get well deposits for account holders at two failed banks, the California-based SVB and the crypto-heavy Signature Bank, based in Recent York.
A majority of SVB’s customers were small tech corporations, enterprise capital firms and entrepreneurs who used the bank for day-to-day money management to run their businesses. Those customers had $175 billion on deposit with tens of tens of millions in individual accounts. That left SVB with certainly one of the very best share of uninsured deposits within the country when it collapsed, with 94% of its deposits landing above the FDIC’s $250,000 insurance limit, in response to S&P Global Market Intelligence data from 2022.
U.S. bank regulators announced a plan Sunday to totally insure all deposits on the two failed banks, including those above the $250,000 limit covered by traditional FDIC insurance. The extra protection will likely be paid for out of a special fund made up of fees levied on all FDIC insured institutions.
As well as, the Federal Reserve loosened its borrowing guidelines for banks looking for short-term funding through its so-called discount window. It also arrange a separate unlimited facility to supply one-year loans under looser terms than usual to shore up troubled banks facing a surge in money withdrawals. Each programs are being paid for through industry fees, not by taxpayers, the Biden administration has emphasized.
“This may help financial institutions meet the needs of all of their depositors,” Yellen said. “This week’s actions display our resolute commitment to make sure that depositors’ savings remain protected.”
Democrats and Republicans in Congress have largely supported the emergency actions taken up to now week. But with markets recovering somewhat, lawmakers Thursday questioned Yellen about whether backstops for large banks will turn into a recent norm, and what that would mean for community lenders.
“I’m concerned concerning the precedent of guaranteeing all deposits and the market expectation moving forward,” Sen. Mike Crapo, R-Idaho, the committee’s rating member, said in his opening remarks.
People line up outside of a Silicon Valley Bank office on March 13, 2023 in Santa Clara, California.
Justin Sullivan | Getty Images
Republican Sen. James Lankford of Oklahoma pressed Yellen about how widely the uninsured deposit backstops will apply across the banking industry.
“Will the deposits in every community bank in Oklahoma, no matter their size, be fully insured now?” asked Lankford. “Will they get the identical treatment that SVB just got, or Signature Bank just got?”
Yellen acknowledged they might not.
Uninsured deposits, she said, would only be covered within the event that a “failure to guard uninsured depositors would create systemic risk and significant economic and financial consequences.”
Lankford said the impact of this standard could be that small banks could be less appealing to depositors with greater than $250,000, the present FDIC insurance threshold.
U.S. Treasury Secretary Janet Yellen takes questions on the Biden administration’s plans following the collapse of three U.S. lenders including Silicon Valley Bank and Signature Bank, as she testifies before a Senate Finance Committee hearing on U.S. President Joe Biden’s proposed budget request for fiscal yr 2024, on Capitol Hill in Washington, March 16, 2023.
Mary F. Calvert | Reuters
“I’m concerned you are … encouraging anyone who has a big deposit at a community bank to say, ‘we’re not going to make you whole, but should you go to certainly one of our preferred banks, we’ll make you whole.'”
“That is certainty not something that we’re encouraging,” Yellen replied.
Members of Congress are currently weighing quite a few legislative proposals intended to stop the subsequent Silicon Valley Bank-type failure.
Certainly one of these is a rise within the $250,000 FDIC insurance limit, which several senior Democratic lawmakers have called for within the wake of SVB’s collapse.
Following the 2008 financial crisis, Congress raised the FDIC limit from $100,000 to $250,000, and approved a plan under which big banks contribute more to the insurance fund than smaller lenders.
