Treasury Secretary Janet Yellen Says Banking System Is Sound, Deposits Are Safe And Inflation Remains Top Priority Following Banking Collapse

U.S. Treasury Secretary Janet Yellen reassured Americans that the banking system continues to show strength and resilience Thursday in an exchange with the Senate Finance Committee.

"This week the government took decisive and forceful actions to stabilize and strengthen public confidence in our financial system ... I can reassure the members of the committee that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them," Yellen said in her opening remarks. 

What Happened: Over the weekend, the government stepped in to inject liquidity into a financial crisis representing the biggest banking collapse in nearly 15 years.

In the wake of a short-lived surge in cash positions and a swift attack on inflation by the Federal Reserve, SVB Financial Group took actions to raise capital, but instability concerns led to bank runs at SVB and a couple of related banks last week. 

Depositors ended up being covered by the FDIC's deposit insurance fund, but SVB went under. The government also announced plans to create a new Bank Term Funding Program centered around protecting institutions. 

See Also: European Central Bank Hikes Rates By 50 Basis Points, Says Banking Sector 'Resilient'

Yellen's Remarks: Yellen took the stand to defend the swift actions of the Treasury, Federal Reserve and FDIC Thursday morning. 

In an exchange with lawmakers, she further explained the government's response. 

"This week’s actions demonstrate our resolute commitment to ensure that our financial system remains strong and that depositors’ savings remain safe," Yellen said. 

SVB was forced to sell assets that it expected to hold to maturation in order to meet liquidity needs, Yellen said, suggesting that part of the problem was that interest rates have increased significantly since the time of purchasing those assets.

She stressed the importance of bringing inflation down and noted that it's President Joe Biden's top priority. Although there has been some moderation in headline inflation, more work needs to be done, Yellen said, echoing recent comments from Fed Chair Jerome Powell.

In Case You Missed It: The Fed's Next Move Against Inflation Hinges On Incoming Data: Powell Plans To 'Scrutinize' All-Important CPI, PPI, Jobs Numbers

The government plans to continue to focus on expanding supply and providing cost relief in areas like energy and health care. 

The Treasury Secretary pointed to an unemployment rate near historic lows and two years of strong business creation following the pandemic. 

"Now, our task is to navigate our economy’s transition from rapid recovery to sustainable growth," Yellen said.

Photo: courtesy of the Federal Reserve.