Yellen: Americans’ Bank Savings ‘Remain Safe’ After Recent Collapses

On Thursday, Janet Yellen, Treasury Secretary to the Treasury, informed members of Congress that bank deposits and savings are important for them. “remain safe” After the collapse of Silicon Valley Bank, Signature Bank, and other banks in recent days, federal intervention was required.

Yellen stated before the Senate Finance Committee that the federal government is committed in ensuring that American deposits are safe and that the American bank system is sound. Fears that the contagion responsible for Signature and SVB’s collapse might spread to other banks are evident in the large stock declines at some regional and community banks since the crisis.

“I can assure the members of this committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them,” In a prepared speech, Yellen spoke to senators. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”

There have been criticisms and concerns about the failure to spot the risks at Signature Bank and SVB before customers withdrew large amounts of their deposits in what was described as a bank run. On Sunday, the Federal Deposit Insurance Corporation (FDIC), Treasury, and Federal Reserve announced a rescue package to guarantee that customers with SVB—an institution heavily used by tech firms and startups companies—and Signature had access to their money, even allowing for amounts that go above the FDIC limit of $250,000.

Some Americans are becoming more concerned about their deposits and savings, due to the tech glitch that affected many Wells Fargo customers last Wednesday. Top financial experts and investors also called for the federal government’s urgent rescue of SVB in order to avoid a larger liquidity crisis, which some fear could lead to another 2008-type financial crisis.

Yellen claimed that the rescue was meant to help customers access their money, pay their bills, and provide a way for their workers to be paid. She said that shareholders and debtholders are not protected against losses due to the bank’s collapse. She also stated that the Federal Reserve made it easier for banks in an emergency to borrow money.

“No taxpayer money is being used or put at risk with this action,” She stated.

The shares of smaller U.S. banks fell on Thursday as investors searched for institutions that could be subject to a similar bank-run by depositors. Wall Street has concentrated on banks that have many depositors over the $250,000 threshold that is insured by FDIC as well as those that service lots of tech startups.

California-based First Republic Bank has been at the center of the market’s turmoil, and it dropped 27 percent Thursday. Over the past week, the bank’s stock fell by more than 50 per cent.

Analysts claim that banks have been hurt by the Federal Reserve’s efforts to raise interest rates to offset decades of high inflation. Although higher interest rates can slow inflation and reduce the economy’s pace, they also raise the possibility of a recession later and can cause a decline in the prices for stocks, bonds and other investments.

Many are betting that the Fed may pause rate increases next week. But the European Central Bank on Thursday raised its key interest rate by half a percentage point, brushing aside speculation that it may reduce the size because of all the turmoil around banks.

Thursday’s remarks were not focused on Credit Suisse, the Swiss-based firm that saw its shares fall earlier this week. In a statement, the firm stated that it will borrow as much as 50 billion Swiss Francs (or about $53 billion) from Switzerland’s central banks to increase liquidity.

As part of President Joe Biden’s attempt to pass a $6.8 Trillion budget, the secretary addressed the Senate committee. He proposed higher taxes on rich individuals, increased defense spending and other measures.

This report was contributed by The Associated Press.