WASHINGTON — Treasury Secretary Janet Yellen, in her first public remarks since the stunning intervention by financial regulators Sunday evening to guarantee all uninsured depositors in two bank failures, fended off concerns from lawmakers about the extent of the government's actions.
Yellen's testimony in the Senate Finance Committee is the first time a high-ranking official in the Biden administration has taken public questions on the decision to guarantee uninsured deposits for Silicon Valley Bank and Signature Bank. She defended the administration's decision to step in and provide a systemic risk exception to both banks.
"We wanted to make sure that the problems at Silicon Valley Bank and Signature Bank didn't undermine confidence in the soundness of banks around the country," Yellen said. "We wanted to make sure that there wasn't contagion that could affect other banks and their depositors."
Sen. James Lankford, R-Okla., asked if community bankers in his state would get the same guarantee for their depositors in the event of a failure: "Will the deposits of every community bank in Oklahoma, regardless of their size, get the same treatment?"
Yellen said that banks would only receive the systemic risk exception and intervention on the behalf of depositors under certain circumstances.
"A bank only gets that treatment if a majority of the FDIC board, a supermajority, a supermajority of the Fed board and I, in consultation with the president, determine that the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences," she said.
Lankford pressed Yellen on the
"I mean that's certainly not something that we're encouraging," Yellen said.
"If we have a lapse of the banking system and its economic consequences, that will have very severe effects on banks in Oklahoma," she continued.
Yellen also pushed back on an attempt by Sen. Marsha Blackburn, R-Tenn., to characterize the intervention by regulators as nationalizing the banking system.
"Absolutely not," Yellen said, asked if she sees the regulators' actions as a step in that direction. "I think this is a step toward stemming the contagion that could place community banks across the country at great risk of runs as well."
In response to other questions from the senators, Yellen defended President Joe Biden's budget and urged Congress to raise the debt ceiling. In response to Sen. Bob Menendez, D-N.J., Yellen said that the effect of failing to raise the debt ceiling on regional banks, especially considering the new Federal Reserve lending facility meant to reassure shaky depositors at other regional banks, would be "devastating."
She said that if Congress doesn't raise the debt ceiling well before any default, the country could risk more runs on regional banks.
"We have seen the concern about whether Congress would meet this responsibility has provoked concern in financial markets," she said.
