Janet Yellen Admits Community Banks In Middle America Might Not Be Protected Like Silicon Valley Bank
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Treasury Secretary Janet Yellen admitted in a Senate Finance Committee hearing Thursday that the Federal Deposit Insurance Corporation and the Federal Reserve might not guarantee large deposits at small community banks like they did for a failed California bank.

The vast majority of deposits at Silicon Valley Bank, which offered services to nearly half of the venture-backed technology and healthcare firms in the United States before its collapse last week, exceeded the $250,000 threshold insured by the FDIC. Regulators scrambled to guarantee all deposits at Silicon Valley Bank such that the remainder of the financial system, in which roughly half of deposits surpass $250,000, would remain safeguarded against bank runs.

Sen. James Lankford (R-OK) questioned Yellen about whether uninsured deposits at community banks in his state “regardless of their size” would likewise be “fully insured.” Yellen replied that a bank “only gets that treatment” if supermajorities of board members at the FDIC and Federal Reserve, as well as she and President Joe Biden, decide that “the failure to protect uninsured depositors would create systemic risk and significant financial and economic consequences.”

Community banks typically operate in small geographic areas and focus on the needs of businesses and families in their immediate vicinity.

Lankford noted that such an approach to deposit insurance has already prompted sizable account holders to move their funds into large financial institutions.

“We have seen the mergers of banks over the past decade,” the lawmaker said. “I am concerned you are about to accelerate that by encouraging anyone who has a large deposit in a community bank to say, ‘We are not going to make you whole, but if you go to one of our preferred banks, we will make you whole.’”

When Yellen said that her agency and other financial regulators are by no means attempting to push large depositors away from small banks, Lankford responded that the phenomenon is “happening right now” because “you are fully insured, no matter what the amount is, if you are in a big bank,” while “you are not fully insured if you are in a community bank.”

Yellen, originally scheduled to testify on the budget proposal submitted last week by the White House, started her remarks by informing lawmakers that the Treasury Department, the Federal Reserve, and the FDIC successfully protected all deposits at Silicon Valley Bank and Signature Bank. The assets for account holders at both defunct financial institutions were provided by the Deposit Insurance Fund, which is funded by fees on banks.

Lankford also expressed concern that community banks in Oklahoma would be forced to pay an additional special assessment to protect the deposits of the “large number of Chinese investors” and “companies directly connected to the Chinese Communist Party” who had accounts at Silicon Valley Bank. Yellen confirmed that all uninsured investors “will be made whole in that bank,” including foreign depositors, since there is no “legal basis to discriminate among uninsured depositors.”

Sen. Marco Rubio (R-FL) raised similar concerns in a letter to Yellen which noted that Silicon Valley Bank had partnered with Shanghai Pudon Development Bank to finance startups in China. The lawmaker requested information regarding whether Chinese depositors can “expect to receive federal reimbursements from the Deposit Insurance Fund and other federal relief.”

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The Daily Wire   >  Read   >  Janet Yellen Admits Community Banks In Middle America Might Not Be Protected Like Silicon Valley Bank