U.S. Treasury Secretary Janet Yellen is set to tell members of the Senate Finance Committee on Thursday the U.S. banking system remains "sound" as the impacts of three bank failures in less than a week continue to be felt in financial markets and beyond.
"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 is set to tell the Senate ahead of a scheduled hearing on President Biden's proposed budget. "This week's actions demonstrate our resolute commitment to ensure that depositors' savings remain safe."
On Sunday, Yellen, in conjunction with Federal Reserve Chair Jerome Powell and FDIC Chair Martin Gruenberg, announced the government would backstop all deposits from failed Silicon Valley Bank after its seizure last Friday.
"Importantly, no taxpayer money is being used or put at risk with this action," Yellen will say. "Deposit protection is provided by the Deposit Insurance Fund, which is funded by fees on banks."
The Federal Reserve also said Sunday it would offer funding to banks through a new facility to help ensure banks could meet all depositor withdrawals, essentially backstopping all deposits — both those insured and uninsured — across the U.S. financial system.
Yellen's prepared remarks will also reiterate that shareholders and debtholders of failed banks are being protected by the government.
New York's Signature Bank, which served clients in the cryptocurrency world, was also seized by regulators Sunday, becoming the third-largest bank ever to fail in the U.S. Silicon Valley Bank is the second-largest failure on record, eclipsed only by Washington Mutual in 2008.
Bond credit rating agency Moody's on Tuesday downgraded the U.S. banking system and put six banks on notice for a downgrade.
In the wake of these failures and seizures, lawmakers have begun to call for a look into the collapse.
The top Democrat on the House Financial Services Committee, Rep. Maxine Waters (D-CA), told Yahoo Finance Tuesday that a rollback in capital requirements is to blame for the collapse and said hearings will be held soon to better understand what went wrong.
Waters called for repealing a 2018 law that loosened capital requirements for smaller banks and said everything is on the table, including clawing back executive compensation.
In the days since regulators took these emergency actions, markets have been exceptionally volatile with liquidity — the ability to move in and out of trades quickly — in U.S. Treasuries drying up.