Treasury Secretary Janet Yellen told Congress on Thursday that the US banking system remains sound, seeking to reassure lawmakers, depositors and investors amid concerns about how the sector is regulated.
(Bloomberg) — Treasury Secretary Janet Yellen told Congress on Thursday that the US banking system remains sound, seeking to reassure lawmakers, depositors and investors amid concerns about how the sector is regulated.
Yellen, who’s appearing before the Senate Finance Committee in Washington, is among policy makers at the center of an emerging banking crisis. The hearing comes amid tumult in global markets and worries over financial stability after the rapid-fire collapse of three regional US banks and troubles at Credit Suisse Group AG.
The Treasury Department along with other regulators intervened in the collapse of Silicon Valley Bank “because of the recognition there can be contagion in situations like this and then other banks can then fall prey,” Yellen said. She added that her department will take a “careful look” at what happened to the bank.
While Yellen’s testimony was scheduled to discuss President Joe Biden’s 2024 budget, the recent events in the banking industry and subsequent action by US regulators is also a topic at the hearing.
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US authorities took extraordinary steps last weekend to shore up confidence following the failure of SVB and Signature Bank, including a new backstop for lenders that Federal Reserve officials said was large enough to guarantee the nation’s deposits.
“We need to look into what the regulators do, exactly what happened to create the problems that these two banks that failed faced, and make sure that our regulatory system and supervision is appropriately geared so that banks manage their risks to avoid problems of the type that these banks have suffered from,” she said.
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Troubles in the banking sector began to spread this week from worries over the weakness of US regional lenders into the broader financial system as problems mounted for Credit Suisse.
The Swiss lender sought to arrest a collapse in investor confidence Thursday by opening a credit line with the country’s central bank and offering to buy back debt.
Read more: Credit Suisse Seeks Circuit Breaker With $54 Billion Backstop
The Treasury Department was actively reviewing the US financial industry’s exposure to Credit Suisse, while Treasury officials were working closely with the Federal Reserve and European regulators, Bloomberg News reported earlier in the day.
When turmoil crops up across the global financial system, Treasury typically reaches out to major banks to gather data that will inform their next steps.
American regulators take a keen interest in the health of the biggest European banks because those lenders are on the other side of transactions worth billions of dollars with US financial institutions.
“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 said in her opening remarks. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”
–With assistance from Ana Monteiro.
(Updates with new Yellen comments from third paragraph.)
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