Treasury Secretary Janet Yellen will tell Congress on Thursday that the U.S. banking system "remains sound" after days of turmoil within the industry roiled global markets and ignited panic over a broader financial meltdown.
Yellen's testimony before the Senate Finance Committee comes days after U.S. regulators took extraordinary steps to contain the fallout from the collapse of Silicon Valley Bank and shore up wavering confidence in the financial system.
"I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them," Yellen will say in her prepared remarks. "This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe."
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On Sunday night, the Treasury Department, Federal Reserve and the FDIC announced that the federal government would protect all SVB deposits, even those holding funds that exceeded the FDIC's $250,000 insurance limit.
The aggressive actions by banking regulators to protect depositors from losing money prompted some criticism from Republican senators, who have slammed it as a bailout. The Biden administration has pushed back hard on that idea.
"No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer," the statement from regulators said.
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Yellen will likely face scrutiny on Thursday over who will ultimately foot the bill for the government intervention in SVB's collapse – and what this could mean for the future of the banking industry.
"Customers were able to access all of the money in their deposit accounts so they could make payroll and pay the bills," Yellen will say. "Shareholders and debtholders are not being protected by the government. Importantly, no taxpayer money is being used or put at risk with this action. Deposit protection is provided by the Deposit Insurance Fund, which is funded by fees on banks."
Although the government's actions helped to stabilize markets earlier this week, investors were spooked again on Wednesday when Credit Suisse said its biggest backer would not provide the bank with any additional funding.
While problems at the European lender appear to be unrelated to SVB, the back-to-back issues sparked fresh fears over the vulnerability of the banking sector in the era of high interest rates.
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Swiss regulators stepped in on Wednesday to announce they would provide liquidity to Credit Suisse if necessary.
The move did little to calm fears about more midsize bank failures in the U.S., however, with regional bank stocks continuing to nosedive on Thursday morning.
