U.S. Treasury Secretary Janet Yellen told lawmakers on Thursday the U.S. banking system remains sound even though two regional banks failed in the last week.
She told the Senate Finance Committee that Americans “can feel confident” their deposits “will be there when they need them.”
Yellen said the government “took decisive and forceful actions to strengthen public confidence" in the U.S. banking system by ensuring that all depositors, including those holding uninsured funds exceeding $250,000, were protected by federal deposit insurance when Silicon Valley Bank and Signature Bank collapsed.
Some critics of the government’s action have called it a bailout, but investors have lost their financial stakes in the two banks, something that would not occur in the normal definition of a bailout, and their executives have been fired.
Senator Mike Crapo of Idaho, the committee's lead Republican, said, "I'm concerned about the precedent of guaranteeing all deposits," calling the federal rescue action a "moral hazard."
"Nerves are certainly frayed at this moment," said Democratic committee chairman Senator Ron Wyden. "One of the most important steps the Congress can take now is make sure there are no questions about the full faith and credit of the United States," referring to raising the country’s $31.4 trillion debt ceiling in the next few months so the government can borrow more money to continue to pay its bills.
Some Republicans have demanded large spending cuts in exchange for raising the debt ceiling, while the White House has requested passage of a debt limit increase that is not tied directly to spending cuts. Both Republican and Democratic lawmakers have said they will not cut health insurance and pensions for older Americans.
Stock markets in both Europe and the U.S. rallied sharply Thursday after Credit Suisse announced it would borrow almost $54 billion from the Swiss central bank to shore up its finances.