Finance Minister Yellen says U.S. banking system is sound, considering regulation or reform

U.S. Treasury Secretary Janet Yellen made her first public remarks following the emergency closure of Silicon Valley Bank and Signature Bank over the weekend, mentioning that "decisive and forceful" emergency measures were taken on Sunday to help restore depositor confidence and prevent a broader bank run. Yellen also reiterated that the U.S. banking system is sound and that regulatory authorities have ample time to review these matters and consider whether regulatory or supervisory reforms are necessary.

Are All Deposits Protected?

According to Reuters, as of the end of last year, over $9.2 trillion of U.S. bank deposits were uninsured, accounting for over 40% of all deposits, and these uninsured deposits were unevenly distributed across states in the U.S.

When asked during a hearing about the scope of uninsured deposits supporting the entire banking industry, Yellen's response was:

Uninsured deposits are covered only when "failing to protect uninsured depositors would pose systemic risk and significant economic and financial consequences."

Reducing Inflation Remains Top Priority

Republican Senator Tim Scott attempted to blame the Biden administration's spending policies for exacerbating inflation, while the Federal Reserve's rapid rate hikes caused a sharp drop in bond prices, ultimately leading to the Silicon Valley Bank incident.

However, Yellen disagreed with this assessment, stating that inflation remains America's "top economic problem," and reducing inflation is President Biden's top priority, adding that the Federal Reserve also needs to "do its part" in this regard.

Focus on Stability

Yellen pointed out that the collapse of Silicon Valley Bank fundamentally stemmed from the bank's inability to meet depositors' funding needs, with its significant uninsured deposits being a contributing factor. Yellen stated that a thorough examination of the events at the bank and the underlying causes of the problem will be conducted.

We are currently very focused on stabilizing the banking system and boosting people's confidence. I believe there is ample time to review these matters and consider whether regulatory or regulatory reform is necessary.

According to CNBC, U.S. lawmakers are evaluating a range of legislative proposals to prevent another Silicon Valley Bank-style failure, including options to raise the current $250,000 FDIC insurance limit.