Washington, D.C.--At a U.S. Senate Finance Committee hearing on President Biden’s Fiscal Year (FY) 2024 budget, Ranking Member Mike Crapo (R-Idaho) questioned U.S. Treasury Secretary Janet Yellen on elements of the true cause of this week’s Silicon Valley Bank (SVB) failure, noting issues with inflation and reports that Federal Deposit Insurance Corporation (FDIC) board members slow-walked decisions that would have better protected taxpayers.
To view Senator Crapo’s full line of questioning, click HERE or the image above.
To download the video click HERE.
On liquidity issues as a result of inflation:
Crapo: Can we agree that the issue here in terms of risk is a liquidity risk we are facing in the system, and that SVB had a liquidity risk issue?
Yellen: There was a massive withdrawal of deposits that led to liquidity problems. The bank had to be closed for that reason.
Crapo: Do you agree, then, there was a liquidity issue?
Yellen: There was liquidity risk in this situation. There will be a careful look at what happened at the bank and what initiated this problem. The reason it had to be closed is because it couldn’t meet depositors’ withdrawal requests.
Crapo: Because their capital was losing value and they were not able to access their capital and I attribute that to interest rate hikes we are seeing in the face of inflation. Am I wrong in that?
Yellen: The bank, to meet liquidity needs, had to sell assets that it expected to hold to maturity and, given the interest rate increases since those assets had lost market value.
On political decisions to delay private sector solution:
Crapo: The solution would have been to get a private sector solution that would have protected taxpayers, calmed markets and prevented inappropriate assessments levied against community banks. Press reports have indicated that some of the FDIC board members may have slow-walked negotiations with regard to potential political backlash surrounding mergers and acquisitions and, because of that, were not able to move forward promptly with obtaining a buyer. Are those reports accurate?
Yellen: This is a question for the FDIC, but I know the FDIC looked for buyers and a merger or acquisition was something they were open to [in order] to resolve the situation.
Earlier in the week, Crapo joined Larry Kudlow to discuss the failed economic policies contributing to this week’s banking collapses, noting any attempt to blame the Economic Growth, Regulatory Relief and Consumer Protection Act is merely blame shifting. That interview is available HERE.