Janet Yellen to say US banking system ‘remains sound’ despite bank failures

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Treasury secretary Janet Yellen will tell a Senate committee that the US banking system “remains sound” and defend the Biden administration’s actions to rescue depositors at two failed banks and thwart broader financial contagion, according to prepared testimony ahead of a hearing on Thursday.

Yellen is expected to be grilled by lawmakers on the Senate finance committee regarding the aggressive intervention by US regulators and officials on Sunday to guarantee all deposits at Silicon Valley Bank and Signature Bank, two collapsed regional banks, and set up a new Federal Reserve facility to provide liquidity to other banks.

“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 at the hearing, which begins at 10am ET. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”

Although the US government’s actions stabilised markets early in the week, investors were again spooked on Wednesday by turmoil at Credit Suisse, the Swiss bank, which Yellen may have to address.

Most Democratic lawmakers have praised President Joe Biden’s administration for taking action to protect the banking system, and blamed a rollback of financial regulation under Donald Trump for paving the way for the crisis.

But some Republicans have charged that US officials and regulators mismanaged the financial system by keeping borrowing costs too low for too long during the coronavirus pandemic, fuelling inflation and forcing the Fed to increase interest rates so quickly it hurt some banks.

While some have suggested Biden’s actions were appropriate, others have criticised it as another dangerous bailout. But Yellen will defend the administration’s moves, along with those of the Fed and the Federal Deposit Insurance Corporation, according to her prepared remarks.

“The government took decisive and forceful actions to strengthen public confidence in our banking system,” she will say. “On Monday morning, customers were able to access all of the money in their deposit accounts so they could make payroll and pay the bills.”