Amid bank crisis fears, Janet Yellen tells Congress banking system ‘remains sound’

Janet Yellen is the first Biden administration official to face lawmakers over the decision to protect uninsured money at two failed regional banks.

A week after the second-largest bank collapse in U.S. history, Treasury Secretary Janet Yellen told the Senate Finance Committee on Thursday that the nation’s banking system “remains sound” and Americans “can feel confident” about their deposits.

Yellen is the first Biden administration official to face lawmakers over the decision to protect uninsured money at two failed regional banks, a move that some Republicans have criticized as a bank “bailout.”

“The government took decisive and forceful actions to strengthen public confidence” in the U.S. banking system, Yellen said in testimony before the committee. “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.”

In less than a week, Silicon Valley Bank, based in Santa Clara, California, failed after depositors rushed to withdraw money amid anxiety over the bank’s health. Then, regulators convened over the weekend and announced that New York-based Signature Bank also failed. They ensured all depositors, including those holding uninsured funds exceeding $250,000, were protected by federal deposit insurance.

The Justice Department and the Securities and Exchange Commission have since launched investigations into the Silicon Valley Bank collapse.

Thursday’s hearing, meant to address President Joe Biden’s budget proposal, comes after the sudden collapse of the nation’s 16th-biggest bank and go-to financial institution for tech entrepreneurs. While Yellen prepared to talk about spending proposals, the hearing inevitably turned to the government’s decision-making process to intervene in the bank failure.

“Nerves are certainly frayed at this moment,” said Sen. Ron Wyden, chairman of the committee. “One of the most important steps the Congress can take now is make sure there are no questions about the full faith and credit of the United States,” he said, referring to raising the debt ceiling.

Mike Crapo of Idaho, the committee’s top Republican, said, “I’m concerned about the precedent of guaranteeing all deposits,” calling the federal rescue action a “moral hazard.”