Yellen: Americans can feel confident in banking system

The U.S. banking system is sound and Americans can feel confident that their deposits will be there when they need them, Treasury Security Janet Yellen told lawmakers today. Testifying before the Senate Finance Committee, Yellen fielded several questions from senators about the state of the banking system following the recent failures of Silicon Valley Bank and Signature Bank, as well as the government’s response to both. “This week’s actions demonstrate our commitment to ensure that our financial system is strong and depositors’ savings remain safe,” she said

Committee Republicans were critical of the Biden administration, which they said had failed to curb inflation, resulting in the Federal Reserve rate hikes that helped bring down both banks. They also said regulators failed to use existing tools to properly supervise both institutions. “Instead of taking accountability for this plain failure, regulators are now forecasting that they plan to increase regulations of the rest of the banking industry,” said Sen. Tim Scott (R-S.C.). Yellen also faced questions from some committee members about the protection being offered to uninsured depositors at the two failed banks and the wider implications of that action.

Some committee Democrats questioned whether regulators dropped the ball, although many blamed what they said was the easing of Dodd-Frank banking regulations under the previous administration. Sen. Elizabeth Warren (D-Mass.) asked about supervisory stress testing for banking institutions, but Yellen said those tests focus on capital, not liquidity. “And in these bank failures, liquidity played an important role,” Yellen said.

The role of social media came under fire from Sen. Sheldon Whitehouse (D-R.I.), who accused “some bad actors” in the venture capital community of using online platforms to spread panic and cause a bank run. “I’m not sure what regulatory system anywhere—no matter how much capital, no matter how many stress tests—would have protected any institution from a $42 billion bank run in a single day,” he said. Yellen responded that SVB had a very high ratio of uninsured deposits and that bank runs do not typically happen among insured depositors.