Yellen Defends Efforts to Stabilize Banking System

Ms. Yellen played a central role in the rescue effort that was undertaken in the last week, ultimately declaring that Silicon Valley Bank posed a “systemic” threat to the economy. That determination opened the door to the Federal Reserve and the Federal Deposit Insurance Corporation guaranteeing the uninsured deposits at the failing banks.

On Thursday, Ms. Yellen explained that because of the nature of the run on Silicon Valley Bank, she and other regulators feared that the unease could spread and cause other banks to face similar outflows of cash.

Despite those actions, Ms. Yellen said that the United State was not taking a step in the direction of nationalizing the banking system. Although there have been suggestions that all of the nation’s deposits are effectively being insured — rather than those under $250,000 — the Treasury secretary made clear that any such guarantees would have to be approved by federal regulators and the Biden administration.

The collapse of the banks and the ensuing market turmoil have led to finger pointing over whether the a 2018 rollback of some of the financial regulations in the Dodd-Frank Act was responsible for the bank failures.

Republicans on the committee also previewed potential political attacks, arguing that Mr. Biden’s spending policies fueled inflation and created the need for the Federal Reserve to raise interest rates. That, they argued, destabilized Silicon Valley Bank by causing the value of its long-dated Treasury bonds and mortgage bonds to be eroded.

Article source: https://www.nytimes.com/2023/03/16/business/janet-yellen-stabilize-banking-system.html