Senator Collins Questions Secretary Yellen about Treasury’s Actions on Banking Crisis


Click HERE to download a photo of Senator Collins questioning Secretary Yellen

Click HERE to watch Senator Collins question Secretary Yellen about the decision to insure all SVB depositors

Click HERE to watch Senator Collins question Secretary Yellen about deposit insurance


Washington, D.C.—U.S. Senator Susan Collins, the Vice Chairman of the Appropriations Committee, asked Secretary of the Treasury Janet Yellen to justify why the Treasury Department, Federal Reserve, and FDIC chose to insure all the deposits at Silicon Valley Bank.  Senator Collins noted that this creates an unfair situation for well-managed community banks, which will be forced to shoulder the cost of this action. 


Secretary Yellen was testifying at a Financial Services and General Government Appropriations Subcommittee hearing to justify Treasury’s fiscal year 2024 budget request.


At the hearing, Senator Collins:


Criticized the Decision to Insure All Silicon Valley Bank Depositors at Expense of Community Banks and Their Customers


Senator Collins:


Secretary Yellen, I want to talk with you about the consequences of the decision that was made by Treasury—in consultation with the Federal Reserve and the FDIC—to use the systemic risk exception in the Federal Deposit Insurance Act to insure all of the deposits of Silicon Valley Bank. Last Wednesday, the new CEO of this bank held a conference call for concerned clients, and he urged them to return all of their deposits to the bank. And here's what he said on that call…. "There is no safer place in the U.S. banking system to put your deposits.” I'm very troubled by that comment because it invites deposit flows from well-managed, prudently invested community banks to a bank that was poorly managed, that took excessive risks. And it seems to me by guaranteeing all of the deposits that you're creating a situation where they are immune from losses [and] draw in deposits from well-managed banks in a way that puts the well-managed community bank at a competitive disadvantage. So, my question to you is, how is this fair?


Secretary Yellen:


Well, look, we invoked this systemic risk exception because Silicon Valley Bank had experienced a calamitous run. A run that was so enormous, that it overwhelmed the liquidity of this bank, its ability to arrange liquidity. And it created the potential for fear about the safety of uninsured depositors in many other banks and a failure to protect those who were uninsured depositors in this bank, if the time it was put into receivership would have led to fears by uninsured depositors at many other banks, who really have no easy way of knowing what the status of their banks are and whether or not their funds are at risk. It risked contagion throughout the banking system. We invoked this exception in order to try to contain the contagion that seemed to all of us to be inherent in these uninsured depositors being wiped out or severely haircutted. So, it wasn't a question of protecting that bank or that group of uninsured depositors, but rather the implications for the broader banking system, because of the contagion potential.


Senator Collins:


Well, I want to switch to related but different topics. But to me, it creates a situation where you're rewarding very wealthy depositors. And you're creating the need for a special assessment that's going to be imposed on those well-managed community banks that didn't take those risks. And from what the bankers I've talked to tell me, the majority of their depositors fall under the $250,000 limit. Well, at Silicon Valley Bank, the opposite was true.


Asked Secretary Yellen about Raising FDIC Insurance


Senator Collins:


Let me follow up on a point that Senator Haggerty made. He asked you about the level of FDIC insurance. I remember in 2008, when it was raised from $100,000 to $250,000 during that financial crisis. Now, some of our colleagues, including Senator Elizabeth Warren, have recommended that we raise it to $2 million or even up to $10 million. Do you agree with that?


Secretary Yellen:


You know, what I'm focused on right now is trying to stabilize the banking system. And I know our banking system to be sound. And I think right now we need to focus on improving the confidence of the public that we do have a sound banking system. And we can debate in the days ahead whether or not $250,000 is the right level for deposit insurance or whether that system could be—should be changed in some way. I'm not going to weigh in on it, I believe there's plenty of time to have reasoned discussions about that. For now, I want to use the tools that we do have at our disposal to improve confidence and make sure the banks that are faced with deposit outflows have adequate access to liquidity. The steps that the Federal Reserve took in the aftermath of that bank failure—to make liquidity more broadly available to support deposits—that's an important step that went with the steps that we took as well.





As the Chair and Vice Chair of the Senate Appropriations Committee, Senators Patty Murray (D-WA) and Susan Collins are pressing forward with the work of writing our nation’s spending bills as quickly as possible.  Under their leadership, the Senate Appropriations Committee is moving full steam ahead with subcommittee hearings on the President’s budget—providing an important opportunity to assess our country’s needs for the coming year and for every appropriator to weigh in on the President’s budget.