Yellen declares that the banking system is in good shape, as new bailouts have been ordered

WASHINGTON (AP) – Treasury Secretary Janet Yellen offered firm and upbeat reassurances to bank depositors and investors on Thursday, even as US financial institutions and European agencies ordered fresh rescue efforts after the second largest banking collapse in US history.

Questioned closely, sometimes aggressively, Yellen told senators at a Capitol hearing that the U.S. banking system “is being sound” and that Americans “can feel confident” about the safety of their deposits

His remarks, against a backdrop of growing concerns about the health of the global financial system, were an effort to signal to markets that there would be no wider contagion. of the collapse of Silicon Valley Bank in California and Signature Bank in New York.

As his testimony ended, another major institution, First Republic Bank, received an emergency infusion of $30 billion in deposits from 11 banks, according to the Treasury. And in Europe hours earlier, Credit Suisse, Switzerland’s second-largest lender received a promise from the Swiss central bank for a loan of up to 50 billion francs ($54 billion).

Wall Street rallied to rescue news.

Republican senators blamed much of the problems on the administration of Democratic President Joe Biden.

The “reckless tax-and-spend agenda that was forced through Congress” contributed to record inflation that the Federal Reserve must offset by raising interest rates, said Sen. Mike Crapo of Idaho. And this increase in rates has caused problems for banks as well as ordinary citizens.

Republicans also questioned Biden’s assurances that taxpayers would not bear the burden of the commitment to make depositors whole.

Yellen resisted that scenario, though she said, “We certainly need to take a hard look at what happened to cause these bank failures and examine our rules and oversight” to prevent them from happening again. He defended the government’s argument that taxpayers won’t end up paying the cost of protecting unsecured money in Silicon Valley and Signature.

Treasury secretary was first administration official to confront lawmakers over decision to protect unsecured money to the two failed regional banks, a move some have criticized as a “savage” of the banks.

“The government took decisive and forceful actions to strengthen public confidence” in the US banking system, Yellen said. “I can assure members of the committee that our banking system remains strong and Americans can feel confident that their deposits will be there when they need them.”

The week has been a whirlwind for markets globally on concerns that banks may be bowing under the weight of the fastest interest rate hikes in decades, increases aimed at stifling rising consumer goods inflation.

In less than a week, Silicon Valley Bank, based in Santa Clara, Calif., failed after depositors rushed to withdraw money amid anxiety about the bank’s health. Regulators then met over the weekend and announced that New York-based Signature Bank had also failed. They said all depositors, including those with uninsured funds of more than $250,000, would be protected by federal deposit insurance.

Since then, the Department of Justice and the Securities and Exchange Commission have launched investigations to the collapse of Silicon Valley Bank, and President Joe Biden has called on Congress to strengthen rules on regional banks.

White House press secretary Karine Jean-Pierre said Thursday: “There are things we can do in the administration, but to really deal with this problem we have to act. Congress has to act.”

Thursday’s hearing, originally scheduled to address Biden’s budget proposal for the fiscal year that begins next October, came after the sudden collapse of Silicon Valley, the nation’s 16th largest bank and a go-to financial institution for tech entrepreneurs. While lawmakers questioned Yellen on the federal deficit and the upcoming debt ceiling negotiations, many focused on bank failures and who was to blame.

The “Biden administration’s handling of the economy contributed to this,” insisted Sen. Tim Scott, RS.C. “I intend to hold regulators accountable.”

Sen. Mark Warner, D-Va., asked, “Where were the regulators in all of this?”

“The nerves are certainly frayed at this point,” said Sen. Ron Wyden, D-Ore., who chairs the committee. “One of the most important steps Congress can take now is to make sure there is no doubt about the full faith and credit of the United States,” he said, referring to raising the federal debt ceiling.

Sen. Mike Crapo of Idaho, the top Republican on the committee, said: “I am concerned about the precedent of guaranteeing all deposits,” calling the federal bailout a “moral hazard.”

Yellen told CBS’ “Face the Nation” last Sunday that bailing out the banks was off the table.

“We’re not going to do that again,” he said, referring to the government’s response to the 2008 financial crisis, which led to massive government bailouts of big US banks.

Yellen, a former Federal Reserve chair and former president of the San Francisco Federal Reserve during the 2008 financial crisis, was a prominent figure in this past weekend’s resolution, which was designed to prevent another systemic banking problem wide.

“This week’s actions demonstrate our strong commitment to ensuring that depositors’ savings are safe,” he said.

Sen. Sherrod Brown, D-Ohio, compared the collapse of the banks to lobbying for rail industry deregulation that Democrats say contributed to the East Palestine train derailment that rocked an Ohio community. “We also see aggressive lobbying like this from the banks,” he said.

In Europe, problems at Credit Suisse deepened concerns about the global financial system.

The Swiss giant was in trouble long before the US banks collapsed, but news on Wednesday that the bank’s top shareholder would not inject more money sent European bank shares tumbling. On Thursday, they rose after the action of the Swiss Central Bank.

Regulators in the US and abroad are trying to reassure depositors that their money is safe. “They don’t want anyone to be the person who sits in a dark room or a darkened movie theater and calls fire, because that’s what causes a rush for exits,” said Russ Mould, the platform’s chief investment officer online investment AJ Bell.

Despite the banking turmoil, the European Central Bank raised interest rates by half a percentage point in its latest effort to curb stubbornly high inflation, saying Europe’s banking sector is “resilient”, with strong finances and plenty of cash on hand.

ECB President Christine Lagarde said the central bank would provide additional support to the banking system if needed. He said banks “are in a completely different position than they were in 2008” because of safeguards added after the financial crisis.

ECB Vice President Luis de Guindos also said Europe’s exposure to Credit Suisse, which is outside the European Union’s banking supervision structure, was “quite limited.”

The Swiss bank, which has seen its shares slide for years, has been pushing to raise money from investors and roll out a new strategy to overcome a range of problems, including bad bets at hedge funds, repeated changes to its top management and an espionage scandal involving Zurich’s rival UBS.


Associated Press writers Dave McHugh in Frankfurt, Germany, and Jamey Keaten in Geneva contributed to this report.


Follow AP’s coverage of Treasury Secretary Janet Yellen at

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