In the aftermath of the second-largest bank collapse in US history, Treasury Secretary Janet Yellen assured legislators and the American public that the nation's banking system remains secure. On March 16, 2023, Yellen became the first official from President Joe Biden's administration to testify before legislators after the collapse of Silicon Valley Bank.
Yellen appeared before the Senate Finance Committee to discuss the government's decision to protect uninsured funds at two failed regional banks. She emphasized that this action did not amount to a bailout. "I can reassure the members of the committee that our banking system is sound and that Americans can feel confident that their deposits will be there when they need them," Yellen stated.
The hearing followed the collapse of California-based Silicon Valley Bank, a preferred financial institution for tech entrepreneurs. Depositors' concerns over the bank's stability led to a rush of withdrawals, causing liquidity issues and the bank's eventual closure. In response, regulators announced that New York-based Signature Bank had also failed. The Justice Department and the Securities and Exchange Commission have since launched investigations into the Silicon Valley Bank collapse.
Yellen outlined two main actions taken by the government to restore confidence in the banking system. First, working with the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) to protect all depositors of the two failed banks. Second, the Federal Reserve's establishment of a new lending facility to support financial institutions in meeting depositors' needs.
Yellen was clear that shareholders and debt holders would not receive government protection and that no taxpayer money was at risk. Despite these reassurances, Senator Mike Crapo expressed concern about the precedent of guaranteeing all deposits and the impact on market expectations.
In a CBS interview, Yellen stated that bailouts were not being considered, referencing the government's response to the 2008 financial crisis. President Biden echoed this sentiment, assuring Americans that the banking system was safe and that taxpayers would not bear any losses.