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Treasury Secretary Janet Yellen defended the Biden administration’s actions to bolster confidence in US banks before lawmakers on Wednesday, emphasising there was no bailout for owners or investors in any failed lenders.
“It’s important to be clear: Shareholders and debtholders of the failed banks are not being protected by the government,” Yellen said at a hearing before a Senate subcommittee.
“No losses from the resolution of these banks are being borne by the taxpayer,” she added. “Deposit protection is provided by the Deposit Insurance Fund, which is funded by fees on insured banks.”
Yellen, along with Federal Reserve Chair Jerome Powell, has been at the center of US government efforts to restore stability to the US banking sector and calm financial markets after the collapse of some mid-sized lenders.
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Also read: Mid-size US banks ask government to protect all deposits: report
Her testimony comes shortly after the Fed’s rate-hike decision, with the central bank saying in a release that US banking system is “sound and resilient.” Powell also said in a press conference that the Fed is committed to learning lessons from the situation.
The Federal Deposit Insurance Corp. on March 12 announced it would guarantee all deposits at the failed Silicon Valley Bank and Signature Bank. On the same day, the Federal Reserve launched an emergency lending program and relaxed terms at its standing facility for banks facing liquidity needs, in an effort to reassure depositors nationwide.
Also read: How SVB and Signature Bank failed so quickly — and why the US banking crisis still persists
Speaking to a conference of bankers on Tuesday, Yellen said the government stood ready to repeat the actions it took to rescue uninsured deposits at the failed lenders “if smaller institutions suffer deposit runs that pose the risk of contagion.”
Wednesday’s hearing before the Financial Services and General Government Subcommittee of the Senate Appropriations Committee was scheduled to give lawmakers a chance to question Yellen on President Joe Biden’s proposed 2024 budget. The committee earlier released the text of her prepared remarks.
Also read: First Republic rescue may rely on US backing to reach a deal
On the budget, Yellen will address the administration’s controversial request for an additional $14 billion for the Internal Revenue Service, just a year after Congress appropriated $80 billion to rebuild the IRS over the next decade.
“Our budget request provides steady-state operational funding that will allow taxpayers to receive the best service possible,” Yellen said. “It will complement the one-time, long-term investment in the IRS.”
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