United States: the Secretary of the Treasury tries to reassure on the soundness of the banking system

Joe Biden's Minister of Economy and Finance, Janet Yellen, was heard by members of the Senate Banking Committee on the turmoil shaking the banking community. REUTERS - MARY F. CALVERT

Text by: RFI Follow

3 min

U.S. Treasury Secretary Janet Yellen on Thursday tried to convince U.S. lawmakers of the soundness of the U.S. banking system after the collapse of SVB bank, while the setbacks of Switzerland's Credit Suisse raise the specter of contagion.

Advertising

Read more

Heard by members of the Senate Banking Committee, Joe Biden's Minister of Economy and Finance tried to "reassure them (...) that our banking system remains strong and that Americans can be confident that the money they have deposited will be available when they need it."

On Sunday, the US authorities had announced that they would guarantee the withdrawal of all SVB deposits and allow access to all deposits of Signature Bank, a New York institution that was closed automatically Sunday by the US regulator.

The Fed to the rescue

In addition, the Federal Reserve (Fed), the US central bank, has committed to lending the necessary funds to other banks that would need them to meet their customers' withdrawal requests. "We felt that there was a serious risk of contagion of large withdrawals" among customers who had funds in excess of the guaranteed amounts, "which could have brought down many banks and triggered panics," Yellen said.

The FDIC, which is the banking regulator, has guaranteed that all SVB and Signature Bank customers will have access to all of their funds, including beyond the usual limit of $250,000. "One of the reasons we stepped in and declared (this) exception ... is that we recognize that there can be contagion in situations like this, and that other banks can then experience a similar panic, which we want to avoid, "said the minister.

Protection of depositors

Thus, "we worked with the Federal Reserve and the FDIC to protect all depositors of the two failed banks. On Monday morning, customers were able to access all the money in their deposit accounts," she recalled. But "shareholders and creditors are not protected by the government." "It is important to note that taxpayers' money is not being used or put at risk with this action. Deposit protection is provided by the insurance fund, which is financed by fees levied on banks," the minister said.

The situation on the banking front has been shaking global markets since late last week. The banking giant Credit Suisse is in turmoil. On Wednesday, it suffered the worst session in its history on the stock market, plunging more than 24%, pushing the central bank to come to its rescue by making available up to 50 billion francs of liquidity (50.8 billion euros) to reassure the markets. On Thursday, Credit Suisse shares rallied with a gain of more than 19%.

After the bankruptcy of Silicon Valley Bank and the difficulties of Credit Suisse, investors' panic is confirmed with, in particular, the rise of the Vix, otherwise known as the "fear index", which evaluates the level of stress on the US markets.

The lower the price of the Vix, the more serene investors are. On the contrary, the more it increases, the more tension there will be in the market. It is an index that can also be traded, so you can invest in this index directly.

Maeva Chazal, Sales Director at IG France

Rachel Saadoddine

Newsletter Receive all the international news directly in your mailbox

I subscribe

Follow all the international news by downloading the RFI application

Read on on the same topics:

• United States
• Finance
• Economy