SVB and Signature Bank posed ‘serious risk of contagion’, says Yellen

SVB and Signature Bank posed ‘serious risk of contagion’, says Yellen

“We considered that there was a serious risk of contagion of massive withdrawals” declared the American secretary to the Treasury.

US Secretary of the Treasury, Janet Yellentried on Thursday to convince American parliamentarians of the solidity of the banking system of the United States, after the bankruptcy of the bank SVBwhile the setbacks of the Swiss Swiss credit raise the specter of contagion.

Heard by members of the Senate Banking Committee, she tried to “reassurance (…) that our banking system remains strong and that Americans can be sure that the money they have deposited will be available when they need it“. “This week’s actions demonstrate our strong commitment to ensuring the safety of depositors’ savings“, further indicated the US Secretary of the Treasury.

On Sunday, the American authorities had announced that they were going to guarantee the withdrawal of all deposits from SVB and allow access to all deposits from Signature Bank, a New York establishment which was automatically closed on Sunday by the American regulator. In addition, the Federal Reserve (Fed), the US central bank, has agreed to lend the necessary funds to other banks that need them to honor withdrawal requests from their customers.

We assessed that there was a serious risk of contagion from mass withdrawals» among clients who had funds above the guaranteed amounts, «which could have brought down many banks and triggered panics“said Janet Yellen. The FDIC, which is the banking regulator, thus guaranteed that all customers of SVB and Signature Bank would have access to all of their funds, including beyond the usual limit of 250,000 dollars.

Risk of contagion

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 may then experience a similar panic, which we want to avoid“, further detailed the minister. So, “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 used or put at risk with this action“, underlined the minister. The situation on the banking front has been rocking global markets since the end of 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 by 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). euros) to reassure the markets. On Thursday, the title Credit Suisse went up the slope, closing with a gain of more than 19%.

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