Yellen Rules Out ‘Blanket Protections’ For All Bank Deposits After Protecting SVB Customers

Topline

Treasury Secretary Janet Yellen said Wednesday she is not considering any new “blanket” insurance to back up all U.S. bank deposits beyond the current $250,000-per-account limit, even though the federal government let Silicon Valley Bank depositors recover all their money after its collapse earlier this month and Yellen suggested Tuesday regulators might take similar action in the future.

Treasury Secretary Janet Yellen listens during a hearing of the Senate Appropriations Subcommittee … [+] on Financial Services and General Government regarding the proposed budget estimates for the Department of the Treasury for fiscal year 2024 on Capitol Hill in Washington on Wednesday. (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)

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Key Facts

Yellen claimed at a Senate appropriations subcommittee hearing she has “not considered or discussed anything having to do with blanket insurance or guarantees of deposits.”

The comments strike a different tone from remarks she gave to the American Bankers Association on Tuesday, where she said lifting the $250,000 cap for SVB customers “was necessary to protect the broader US banking system,” adding, “similar actions could be warranted if smaller institutions suffer deposit runs.”

Bloomberg also reported this week that Treasury Department officials were reviewing whether the department had the money or authority to broadly lift the $250,000 threshold, in part by using $30 billion of Exchange Stabilization Fund cash to insure bank customers.

Crucial Quote

“This is not something we have looked at,” Yellen assured senators Wednesday.

Chief Critic

Many Republicans have blasted the federal government’s “bailout” of SVB customers, which included numerous tech startup companies with high-dollar accounts. Sen. Bill Hagerty (R-Tenn.) reportedly told Yellen on Wednesday that it would be a “misuse” of Treasury Department funds to continue insuring money in accounts beyond $250,000. The federal government says taxpayer dollars won’t be used to safeguard SVB deposits, and any losses from the bank will be covered by assessments from other banks that pay into the Federal Deposit Insurance Corporation’s fund.

Big Number

93%. That’s the percentage of SVB deposits that were uninsured since they were in accounts above the $250,000 insurance limit.

Key Background

The collapse of SVB has put significant strain on other regional banks, which has led to broader worries about the stability of the American banking system and smaller banks in particular. Top officials, including Yellen and President Joe Biden, have repeatedly said Americans’ money is safe and there is no cause for concern, but that hasn’t thwarted the threat of collapse. New York-based Signature Bank failed just days after SVB, while the stock price of San Francisco-based First Republic Bank has cratered almost 90% in the past few weeks despite 11 of the nation’s largest banks depositing $30 billion in a rescue plan to keep the bank in business. The SVB bank run kicked off on March 8, when that bank announced it would sell more stock to raise funds, signaling liquidity problems after it invested billions in depositor funds into government bonds—which lost value after Federal Reserve Chairman Jerome Powell raised interest rates. The bank collapsed and was taken over by federal regulators two days later.

What To Watch For

The Senate Banking Committee plans to hold the first in a series of congressional hearings involving SVB next Tuesday.

Tangent

A Morning Consult poll released Wednesday found roughly one-in-six Americans moved some of their money due to the failure of SVB, while 10% moved “all” of their money.