Despite the failure of two large national banks, Treasury Secretary Janet Yellen has told members of the Senate Finance Committee that the country’s banking system remains sounds.
Yellen said that “Americans can feel confident that their deposits will be there when they need them,” after both the Treasury Department and the Federal Deposit Insurance Corporation stepped in to announce that all deposits with the Silicon Valley Bank and the Signature Bank would be fully repaid.
Late last week alarmed customers with both the Signature Bank and Silicon Valley Bank with drew millions in deposits, leading to the collapse of the two institutions. Signature is based in New York, but has locations in the West in Nevada and California.
Silicon Valley Bank is based in Santa Clara, California, with offices in Tempe, Arizona and branches on both the east and west coast.
Noting that ongoing federal bank fees are being used as emergency funds to repay depositors of the two banks, Yellen remarked: “Importantly, no taxpayer money is being used or put at risk with this action.”
Silicon Valley Bank had invested a significant percentage of its funds in mortgage and Treasury bonds, with its overall portfolio declining in value when interest rates began to increase last year.
Reports indicate that a large number of the bank’s depositors were tech companies and startups.
hen word got out that the bank was in trouble, “too many people tried to withdraw their money at the same time, and the bank become insolvent,” notes the publication Business Insider.
The same pattern was repeated at the Signature Bank, prompting regulators to shut it down.
The Board of Governors of the Federal Reserve System subsequently issued a statement noting that depositors with both banks will be protected from financial losses, which are guaranteed by the FDIC for up to $250,000.
The statement continued: “The U.S. banking system remains resilient and on a solid foundation.”
Despite such assurances, New Mexico Senator Martin Heinrich has announced his intention to repeal legislation passed in 2018 that reduced oversight for some financial institutions.
While the swift federal action is being praised by many, the Denver Post has noted other looming bank problems: “The bonds and other debt instruments banks bought when they were flooded with deposits during the pandemic are now worth much less, and realizing those losses will trigger huge write-offs at banks.”
There have been slightly under 600 bank failures in the U.S. since the year 2000. While alarming, those numbers pale to 1933, at the depths of the Great Depression, when more than 4,000 banks shut down.
By Garry Boulard
