SVB collapse: Janet Yellen under fire from GOP over dangers facing small banks

SSome Republicans and banks are shaming Treasury Secretary Janet Yellen for the federal government’s decision not to insure deposits. “systemically risky” Banks of large size

The Federal government announced its support for all deposits at banks after Silicon Valley Bank collapsed. This includes those that exceed the $250,000 threshold of Federal Deposit Insurance Corporation. In addition, the Federal Reserve created a new source to fund banks that may be subject to run by depositors. It is called the Bank Term Funding Program.

SVB COLLAPSE – FIRST REPUBLIC SUCK PLUNGES ABOVE RESCUE EFFORT BY BANKS

Some people have called this a bailout. But the administration claims it wasn’t. The funds were paid from bank fees, not directly from taxpayers, and the banks were still allowed fail. However, some lawmakers worry about how this move will be perceived by community banks and the impact it will have on smaller banks.

“Will the deposits in every community bank in Oklahoma, regardless of their size, be fully insured now?” Yellen was questioned this week by Senator James Lankford (R,OK) at a Capitol Hill hearing. “Will they get the same treatment that SVB just got or Signature Bank just got?”

Yellen stated that depositors at a bank would only be eligible for this treatment if the federal governments determines. “that the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

Independent Community Bankers of America are also addressing Yellen. The ICBA represents thousands upon thousands of small U.S. bank branches, also known as community banks, all across the country.

Rebeca Romero Rainey (President and CEO) condemned Yellen’s statements that only depositors at systemically dangerous banks will be insured. “a bailout for big banks that rewards mismanagement and risky behavior to the detriment of community banks and the communities they serve.”

“Secretary Yellen’s statements that only the largest and riskiest institutions will be bailed out by regulators underscore what ICBA has long said: unlike too-big-to-fail institutions, community banks don’t need government bailouts because they operate under a safe, sound, and relationship-based banking model that has withstood economic cycles,” Rainey stated.

Lankford questioned Yellen about her plan to prevent large depositors moving their money out of smaller banks and into larger banks.

He noted the numerous bank mergers over the past decade, and expressed concern about the administration’s potential acceleration of that trend by encouraging large depositors at community banks to turn to the government. “preferred banks.”

“Well, I mean, that’s certainly not something we’re encouraging,” Lankford responded that it was already taking place.

Yellen also argued, in cases like SVB or Signature Bank, if government doesn’t make depositors whole it could lead to a collapse in the financial system, which would also hurt community banks in Lankford.

“If we have a collapse of the banking system, and its economic consequences, that will have very severe effects on banks in Oklahoma,” She spoke.

2008 bailouts were a different story. Congress approved a rescue with taxpayer funds through the Troubled Assets Relief Program, and it supported big banks. These bailouts helped banks to recover and keep employees and investors above water. However, these most recent moves allowed investors to return to zero and eliminated the banks’ management teams.

Camden Fine is the CEO of Calvert Advisors, and was previously the head of ICBA. Washington Examiner The government’s efforts were considered a bailout, as was the verdict this week. He also claimed that the public would still be responsible for some of the costs because the FDIC deposit insurance fund will cover the costs. This fund is funded by other banks.

“And now local Main Street community banks have to pick up the tab for bailing out these people and firms. And that cost will find its way to the consumer on the street. There is nothing for free here,” Fine.

Rep. Blaine Luetkemeyer (Republican from Missouri), sits on House Financial Services Committee and suggested this week that government temporarily insure all bank deposits in the country to boost confidence in U.S. banks. Blaine Luetkemeyer stated that this would allow smaller banks to navigate the aftermath of SVB’s collapse and help build trust in the U.S. banking system.

“If you don’t do this, there’s going to be a run on your smaller banks,” Luetkemeyer told Politico. “Everyone’s going to take their money out and run to the JPMorgan’s and these too-big-to-fail banks, and they’re going to get bigger, and everybody else is going to get smaller and weaker, and it’s going to really be bad for our system.”

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SVB’s collapse, and the subsequent uncertainty that followed, have roiled markets. After a wild week, the Dow Jones Industrial Average fell nearly 400 points Friday.

SVB’s parent company filed bankruptcy on Friday, just a week after the Federal Government announced that the bank was insolvent.