Janet Yellen grilled on bank failures and her new proposal

Treasury Secretary Janet Yellen assured markets that the federal government is dedicated to protecting deposits in the wake of the two bank failures.

However, she noted that they do not want this to set a precedent for all future bank failures.

What can change after two bank failures?

The closures of Silicon Valley Bank and Signature Bank caused bank regulators to rush to freeze all deposits. This includes deposits that exceed the FDIC insurance limits through a special fund.

CNBC quoted Janet Yellen on Thursday: “Our banking system remains strong and Americans can feel confident that their deposits will be there when they need them.”

The Federal Reserve also temporarily loosened its lending requirements as part of its emergency measures following the crash.

Banks seeking short-term funding can use the so-called discount window under more liberal conditions.

However, Republican members expressed concern whether the decision would set a standard for guaranteeing all deposits from now on. But, the economist acknowledged that this may not be the case in future.

He clarified that uninsured deposits would be covered only if their failure would “create systemic risk and significant economic and financial consequences.”

Specifically, the report observed that small tech companies, venture capital firms, and entrepreneurs with working money make up the majority of SVB’s clients. As per reports, 94% of SVB’s assets were not insured.

There is another possible reason why customers are gravitating towards bigger banks. Major US banks such as JP Morgan and Citigroup received many requests from smaller lenders to open accounts. BeInCrypto previously cited reports that corroborate this migration.

Congress is currently debating a number of legislative ideas designed to prevent the next Silicon Valley Bank-style collapse. Meanwhile, both the banks are receiving takeover bids.

Banking Situation in the US and Impact on Crypto

Senator Elizabeth Warren took to Twitter to express her displeasure over the government’s involvement in defending ‘crypto’ platforms. Based on industry sources, it was rumored that the buyers of Signature could be asked to split across crypto verticals.

Meanwhile, large US institutions came to its rescue to prevent another bank from joining the collapse of SVB and Silvergate.

First Republic Bank received $30 billion in funding on Thursday after a week of falling shares. According to reports, some of the biggest names in US finance including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp and Goldman Sachs intervened to rescue the regional bank.

That said, regulators and decision-makers are examining how social media and digital messaging may have contributed to the crashes of these medium-sized banks. and whether psychological banking has had an impact on traditional banking in the digital age.

An increase in Web3 activity and the high market capitalization of cryptocurrencies have also been pointed to as reasons for the collapse, especially since the now-defunct Silvergate Bank and Signature Bank were renowned for their extensive connections to the industry.