Banking system sound – Yellen



The Manila Times

Foreign Business

WASHINGTON, D.C.: Treasury Secretary Janet Yellen offered firm, upbeat reassurances to rattled bank depositors and investors Thursday even as American financial institutions and European agencies ordered fresh rescue efforts following the secondlargest bank collapse in US history. Yellen told senators at a Capitol hearing that the US banking system “remains sound” and Americans “can feel confident” about the safety of their deposits. Her remarks, against the backdrop of deepening concerns about the health of the global financial system, were an effort to signal to markets that there would be no broader contagion from the collapse of Silicon Valley Bank (SVB) in California and Signature Bank in New York. By the time her testimony was over, another major institution, First Republic Bank, received an emergency infusion of $30 billion in deposits from 11 banks, according to the Treasury. And in Europe hours earlier, Credit Suisse, Switzerland’s secondlargest lender, got a promise from the Swiss central bank of a loan of up to 50 billion francs ($54 billion). Republican senators laid a big part of the blame for the problems on the Biden administration. “The reckless tax and spend agenda that was forced through Congress” contributed to record-high inflation that the Federal Reserve is having to compensate for through increasing interest rates, said Sen. Mike Crapo of Idaho. The Republicans also questioned Biden’s assurances that taxpayers will not bear the brunt of the commitment to make depositors whole. Yellen resisted that scenario, though she said, “We certainly need to analyze carefully what happened to trigger these bank failures and examine our rules and supervision” to prevent them from happening again. “The government took decisive and forceful actions to strengthen public confidence” in the US banking system, she testified. The week has been a whirlwind for markets globally on worries about banks that may be bending under the weight of the fastest hikes to interest rates in decades. In less than a week, California’s SVB 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 said that all depositors, including those holding uninsured funds exceeding $250,000, would be protected by federal deposit insurance. The Justice Department and the Securities and Exchange Commission have since launched investigations into the Silicon Valley Bank collapse, and President Joe Biden has called on Congress to strengthen rules on regional banks. Yellen said on CBS’ “Face the Nation” last Sunday that a bank bailout was not on the table. “We’re not going to do that again,” she said, referring to the government’s response to the 2008 financial crisis, which led to massive government rescues for large US banks. Yellen was then the Federal Reserve chairman and past president of the San Francisco Federal Reserve during the 2008 financial crisis. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe,” she said. In Europe, troubles at Credit Suisse deepened concerns about the global financial system. The Swiss giant was having issues long before the US banks collapsed, but the news on Wednesday that the bank’s biggest shareholder would not inject more money led shares of European banks to plunge. On Thursday, they rose after the Swiss Central Bank’s action. Regulators in the US and abroad are trying to reassure depositors that their money is safe. They “don’t want anybody to be the person who sits in a darkened room or darkened cinema and shouts fire because that’s what prompts a rush for the exits,” said Russ Mould, investment director at the online investment platform AJ Bell. Despite the banking turmoil, the European Central Bank (ECB) hiked interest rates by a half percentage point in its latest effort to curb stubbornly high inflation, saying Europe’s banking sector is “resilient,” with strong finances and plenty of available cash. ECB President Christine Lagarde said the central bank would provide additional support to the banking system if necessary. She said banks “are in a completely different position from 2008” because of safeguards added after the financial crisis. ECB Vice President Luis de Guindos also said Europe’s exposure to Credit Suisse, which is outside the European Union’s banking supervision structure, was “quite limited.” The Swiss bank, which has seen its stock decline for years, has been pushing to raise money from investors and roll out a new strategy to overcome an array of troubles, including bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving Zurich rival UBS.