First modification:
In remarks prepared for an appearance before bankers on Tuesday, US Treasury Secretary Janet Yellen said more measures may be needed to protect bank depositors if smaller institutions suffer runs on deposits that threaten to infect to the rest of the system.
That Joe Biden has come out to reassure the public by guaranteeing 100% of their deposits in Silicon Valley Bank when the bank collapsed less than two weeks ago generated divided opinions.
On the one hand, there are those who think that their actions, hand in hand with other relief measures adopted by the Federal Reserve, served to reassure the market and avoid further turbulence.
However, the Democratic administration has also been the target of criticism from those who see the emergency measures as a “bailout” that brings to mind the beginnings of the 2008 financial crisis.
The controversy is that the insurance that is paid for bank deposits in the United States has a guarantee that is activated only for amounts less than $250,000 when a financial institution collapses.
In the case of Silicon Valley Bank, the institution decided to guarantee all the deposits. And Treasury Secretary Janet Yellen warned on Tuesday, March 21, 2023, that “similar actions could be justified if smaller institutions suffer runs on deposits that present a risk of contagion.”
Today, I’m giving remarks to the @ABABankers about the economy, the health of the banking system, and the federal government’s commitment to ensure the US banking system remains sound. https://t.co/CL4cEO8UAR
—Secretary Janet Yellen (@SecYellen) March 21, 2023
Opposition in Congress
The group of 37 hardline Republicans in the House of Representatives known as the House Freedom Caucus opposes an eventual universal guarantee of deposits beyond the current limit, saying that this measure “would set a dangerous precedent that encourages future irresponsible behavior who then have to pay those who are not involved and do follow the rules”.
Through a statement, this group also requested that the Federal Reserve “dismantle” the extraordinary financing line that it created on March 12 that allows banks to increase their loan requests to cover massive deposit outflows.
“The steps we took were not focused on helping specific banks or classes of banks. Our intervention was necessary to protect the US banking system in general,” Yellen said in comments published by the Treasury Department.
With Reuters, AP and local media