Treasury Secretary Janet Yellen plans to tell Congress on Thursday that the US banking system remains sound, seeking to reassure lawmakers, depositors and investors before taking what are likely to be tough questions about how the sector is regulated.
Yellen, who’s scheduled to appear before the Senate Finance Committee at 10am in Washington, is among policy makers at the centre 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.
“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 will say, according to a text of her prepared remarks. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”
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 are likely to dominate the hearing.
US authorities took extraordinary steps last weekend to shore up confidence following the failure of Silicon Valley Bank and Signature Bank, including a new backstop for lenders that Federal Reserve officials said was large enough to guarantee the nation’s deposits.
Yellen is expected to defend the measures, which were intended to ease concerns about spillover effects to other regional lenders and even the broader economy. She will likely be asked Thursday about plans to toughen some bank rules, which Biden has called for, as well as oversight by the US Federal Reserve, which she ran until from 2014 to 2018.
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“The government took decisive and forceful actions to strengthen public confidence in our banking system,” Yellen will say.
“Shareholders and debtholders are not being protected by the government,” she said. “Importantly, no taxpayer money is being used or put at risk with this action.”
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.
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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.
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.
