LDN - Business

Yellen says US prepared to take more action to keep bank deposits safe

[March 24, 2023] By David Lawder and Kanishka Singh

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen reiterated on Thursday that she was prepared to take further action to ensure that Americans' bank deposits stay safe amid turmoil in the banking system.

"As I have said, we have used important tools to act quickly to prevent contagion," Yellen said in remarks to the U.S. House of Representatives Appropriations subcommittee hearing.

"These are tools we could use again for an institution of any size if we judged its failure would pose a systemic risk," she added.

Silicon Valley Bank was taken over by federal regulators on March 10, followed days later by Signature Bank. Multiple federal agencies, including the U.S. Department of Justice and the Securities and Exchange Commission, are probing SVB.

Global banking markets have been skittish and investors remain fearful of wider economic repercussions.

Given that Congress is divided in control, with Republicans holding a majority in the House of Representatives and President Joe Biden's fellow Democrats leading the Senate, any new legislation in light of the banking crisis would require bipartisan support.

House Financial Services Committee Chairman Patrick McHenry, a Republican, said on Wednesday it was too early to tell if new legislation was necessary after the failures of the two banks.

Biden said last week the banking crisis has calmed down, and promised Americans that their deposits are safe.

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U.S. Treasury Secretary Janet Yellen testifies before a Senate Finance Committee hearing on Capitol Hill in Washington, U.S., March 16, 2023. REUTERS/Mary F. Calvert/File Photo

On the broader state of the U.S. economy, Yellen said the labor market was "extremely tight," which was contributing to inflation.

However, she also added that supply chain pressures and shipping costs were coming down and were eventually likely to bring down inflation.

Separately on the issue of the debt ceiling, the Treasury secretary said that a U.S. debt default would undermine the dollar's reserve currency status and that a failure to raise the debt ceiling would lead to a recession or worse.

Republicans in the U.S. House of Representatives are working on a "term sheet" of conditions they would want Democrats to agree to in exchange for voting to raise the federal government's $31.4 trillion debt ceiling later this year, House Budget Committee Chairman Jodey Arrington said on Thursday.

Yellen also told lawmakers Russia and China have the motivation to try to develop an alternative to the U.S. dollar but it would be "tremendously difficult" for them to do so.

"I certainly want to see the dollar remain as the world's reserve currency and there is a motivation that Russia and China have to try to develop another system that avoids the use of the dollar," Yellen said.

(Reporting by David Lawder; writing by Kanishka SinghEditing by Marguerita Choy and Diane Craft)

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