Ovunc Kutlu
23 March 2023•Update: 24 March 2023
ISTANBUL
US Treasury Secretary Janet Yellen said Thursday the agency is "prepared to take additional actions if warranted" amid the banking crisis that sweeps the nation in recent weeks.
"Our top priority is to protect the health of the U.S. economy. Two weeks ago, we learned of problems at two banks that could have had significant impacts on the broader banking system and the American economy," she said before the House Financial Services and General Government Appropriations Committee.
"We took actions to protect all depositors at the two failed institutions and provide additional liquidity for banks. This was designed to mitigate risks to the banking system," she added.
Within a couple of weeks, Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank have gone under in the US, causing panic for Wall Street and investors, but especially for depositors.
Yellen stressed that shareholders and debtholders of the failed banks "are not being protected" by the US government, but noted that no losses from the resolution of these banks will be borne by American taxpayers.
She said the protection of the depositors in the banks is provided by the Deposit Insurance Fund, which is funded by fees on insured banks.
The Treasury head said the agency has used "tools to act quickly to prevent contagion" and it is ready to use those again.
"The strong actions we have taken ensure that Americans’ deposits are safe," she said.
About the high inflation that sweeps the globe, as well as American economy, Yellen said the annual inflation has been declining as the US sees reduced pressures on supply chains and dramatic decline in shipping costs.
She noted that the shift during the coronavirus pandemic have also given rise to large increases in housing and rental prices, but those indicators now are either stabilizing or coming down.
"It is the first job of the Federal Reserve to take actions to bring inflation down, but these factors are lowering it and the administration has taken actions to bring down health care costs, energy prices and lower the costs that burden American families," she told.
During the coronavirus pandemic, the Fed injected an unprecedented $5 trillion into markets to support the American economy.
"Excessive federal spending, in my opinion, does contribute to inflation. So, the next question is how much inflation should we endure, and what point will it be necessary to roll back federal spending," asked Rep. Steve Womack, Republican from Arkansas who was named the chairman of the Appropriations Financial Services and General Government Subcommittee.
Yellen said she does not want to comment on the Fed's interest rate decisions and respect their decision.
She was the head of Fed from February 2014 to February 2018.
"I do believe that there is a path by which we can maintain a strong labor market and also bring down inflation, and I believe that's the path the Fed would ideally like to follow.
"The labor market at the moment is extremely tight ... It's contibuing to inflation particularly in services. So, some inflation is coming down because of supply-chain reasons and impact of Russia's war on Ukraine, the Fed is concerned that they need to relieve some of that pressure," she explained.
