MARY LOUISE KELLY, HOST:

Treasury Secretary Janet Yellen supplied reassurance at the moment that the U.S. banking system is sound regardless of two current financial institution failures. Yellen’s feedback come after a nervous week for banks and their clients. This afternoon, almost a dozen massive banks teamed as much as pump cash right into a troubled, smaller financial institution. Shares rallied within the U.S. and in Europe, however questions stay in regards to the actions the federal government took to shore up the banking system and the way to forestall comparable meltdowns in future. NPR’s Scott Horsley is right here to tackle a few of these questions. Hey, Scott.

SCOTT HORSLEY, BYLINE: Hello, Mary Louise.

KELLY: All proper. So Janet Yellen was showing earlier than a Senate committee at the moment. She received every kind of questions on these financial institution failures. What did she say?

HORSLEY: She says the administration is dedicated to defending financial institution clients. After Silicon Valley Financial institution in California and Signature Financial institution in New York collapsed, each the FDIC and the Federal Reserve took extraordinary steps to ensure the individuals and companies who had cash in these banks wouldn’t endure losses and to restrict the type of monetary ripple results that may have put different banks in danger.

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JANET YELLEN: I can reassure the members of the committee that our banking system is sound and that People can really feel assured that their deposits shall be there once they want them.

HORSLEY: The non-public sector additionally pitched in at the moment. Eleven massive banks stated they’d deposit $30 billion into First Republic Financial institution. That is a San Francisco-based financial institution that is been struggling among the identical pressures that introduced down Silicon Valley Financial institution final week.

KELLY: Nice. And what did Yellen say about that? There’s been a lot finger-pointing. Did we get any nearer to determining who or what’s accountable?

HORSLEY: Properly, there’s a number of blame to go round, beginning, after all, with the banks’ managers, who made some rookie errors, extending to federal supervisors, who apparently didn’t catch and proper these errors, and possibly members of Congress who watered down among the measures designed to forestall this type of drawback after the nice monetary disaster. Finally, although, Yellen says Silicon Valley was introduced down by a basic financial institution run. That is when too many depositors need to get their cash out abruptly. And Virginia Senator Mark Warner famous this financial institution run occurred with extraordinary velocity. Lots of Silicon Valley Financial institution’s depositors are a part of that tightly knit tech business within the Bay Space, and the minute information of Silicon Valley Financial institution’s troubles began to mild up on their cellphones, they switched to their banking apps and tried pulling out tens of billions of {dollars}.

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MARK WARNER: We have seen now the very first social media internet-based financial institution run. I do not – certain – what regulatory system wherever, regardless of how a lot capital, regardless of what number of stress checks, that will have protected any establishment from a $42 billion financial institution run in a single day.

HORSLEY: Now, Yellen says Silicon Valley Financial institution was significantly susceptible to that type of run as a result of a lot of its deposits had been uninsured. The entire function of deposit insurance coverage is to discourage financial institution runs by letting clients know their cash’s protected. However the FDIC sometimes covers solely $250,000 per account, and many of the cash on deposit at Silicon Valley Financial institution was not coated.

KELLY: Proper. Though on this case, the federal government made an exception – stated it will assure all of the deposits, together with these approach over 1 / 4 of one million {dollars}. And I assume I ponder, can we perceive but what sort of precedent that may set? Like, if one other financial institution fails, is the federal government going to leap in and canopy massive deposits?

HORSLEY: Yeah, that was one of many massive questions at the moment. Republican Senator James Lankford requested, you understand, if a small financial institution in Oklahoma goes down, will its massive clients get the identical type of safety? Yellen stated, not essentially, and that worries Lankford.

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JAMES LANKFORD: We have now seen the mergers of banks over the previous decade. I am involved you are about to speed up that by encouraging anybody who has a big deposit in a neighborhood financial institution to say, we’re not going to make you complete, however for those who go to one among our most well-liked banks, we’ll make you complete.

HORSLEY: And that is the type of perverse incentive policymakers shall be wrestling with within the weeks to come back.

KELLY: Thanks, Scott.

HORSLEY: You are welcome.

KELLY: NPR’s Scott Horsley.

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