“I can assure 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 is set to tell the Senate ahead of a scheduled hearing on President Biden’s proposal. budget. “This week’s actions demonstrate our resolute commitment to ensuring depositors’ savings remain safe.”
On Sunday, Yellen, along with Federal Reserve Chairman Jerome Powell and FDIC Chairman Martin Gruenberg, announced that the government would withhold all deposits from failed Silicon Valley Bank following the seizure last Friday.
“Importantly, no taxpayer money is being spent or put at risk with this action,” Yellen will say. “Deposit protection is provided by the Deposit Insurance Fund, which is financed by fees on banks.”
The Federal Reserve also said Sunday it would offer funding to banks through a new facility to help ensure banks could meet all depositor withdrawals, essentially stopping all deposits — both insured and uninsured — across the the American financial system.
Yellen’s prepared remarks will also reiterate that shareholders and debt holders of failed banks are protected by the government.
New York’s Signature Bank, which served clients in the cryptocurrency world, was also seized by regulators on Sunday, becoming the third-largest bank ever to fail in the U.S. The Silicon Valley bank is the second-largest failure ever, eclipsed only by Washington Mutual in 2008.
Bond rating agency Moody’s on Tuesday downgraded the US banking system and called for a downgrade for six banks.
In the wake of those failures and seizures, lawmakers have begun calling for a look into the breakdown.
The top Democrat on the House Financial Services Committee, Rep. Maxine Waters (D-CA), told Yahoo Finance on Tuesday that a rollback of capital requirements is to blame for the collapse, and said hearings will soon be held to better understand what went wrong.
Waters called for repealing a 2018 law that eased capital requirements for smaller banks and said everything is on the table, including scaling back executive compensation.
In the days since regulators took those emergency measures, markets have been unusually volatile with liquidity — the ability to move in and out of trades quickly — in U.S. Treasuries drying up.
The 2-year Treasury yield, seen as the closest proxy for expected Fed action, has moved more than 0.20% for five consecutive daysthe longest streak in over 40 years, according to data from Bespoke Investment Group.
Yellen’s appearance on Capitol Hill comes as other regulators begin laying the groundwork to examine this week’s events, with SEC Chairman Gary Gensler telling reporters Wednesday afternoon that the SEC is looking at money markets to examine vulnerabilities across the financial system.
“We’re looking at the entire money market fund and the broader fund complex to see what exposures they might have if an entity is in distress or if an entity goes bankrupt or bankrupt,” Gensler said.
“The markets last week, the plumbing of the market – and I separate it from the corporates – the plumbing market has performed reasonably well, but there is a lot of volatility.”
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