Yellen is the first Biden administration official to face lawmakers over the decision to protect uninsured money at two failed regional banks, a move that some Republicans have criticized as a bank “bailout.”
“The government took decisive and forceful actions to strengthen public confidence” in the U.S. banking system, Yellen said in testimony before the committee. “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.”
In less than a week, Silicon Valley Bank, based in Santa Clara, California, failed after depositors rushed to withdraw money amid anxiety over the bank’s health. Then, regulators convened over the weekend and announced that New York-based Signature Bank also failed. They ensured all depositors, including those holding uninsured funds exceeding $250,000, were protected by federal deposit insurance.
The Justice Department and the Securities and Exchange Commission have since launched investigations into the Silicon Valley Bank collapse.
Thursday’s hearing, meant to address President Joe Biden’s budget proposal, comes after the sudden collapse of the nation’s 16th-biggest bank and go-to financial institution for tech entrepreneurs. While Yellen prepared to talk about spending proposals, the hearing inevitably turned to the government’s decision-making process to intervene in the bank failure.
“Nerves are certainly frayed at this moment,” said Sen. Ron Wyden, chairman of the committee. “One of the most important steps the Congress can take now is make sure there are no questions about the full faith and credit of the United States,” he said, referring to raising the debt ceiling.
Mike Crapo of Idaho, the committee’s top Republican, said, “I’m concerned about the precedent of guaranteeing all deposits,” calling the federal rescue action a “moral hazard.”
Yellen said on CBS’ “Face the Nation” last Sunday that a bailout was not on the table, stating, “we’re not going to do that again,” referring to the U.S. government’s response to the 2008 financial crisis, which led to massive government rescue policies to large U.S. banks.
Yellen, a former Federal Reserve chair and past president of the San Francisco Federal Reserve during the 2008 financial crisis, was a leading figure in the resolution this past weekend, which was engineered to prevent a wider systemic problem in the banking sector.
“This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe,” she said.
This is a developing story. Please check back for updates.