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Janet Yellen Admits Community Banks In Middle America Might Not Be Protected Like Silicon Valley Bank

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.

Silicon Valley Bank had deposits exceeding $250,000. This bank provided services to more than half of the venture-backed healthcare and technology firms in America before it collapsed last week. Silicon Valley Bank had approximately half of all deposits exceeding $250,000. Regulators had to scramble to guarantee them.

Sen. James Lankford (R,OK) questioned Yellen on whether uninsured deposit at his state’s community banks were covered. “regardless of their size” Also, “fully insured.” Yellen said that a bank was a good choice. “only gets that treatment” If supermajorities are reached by the FDIC and Federal Reserve board members, along with President Joe Biden and her, they decide that “the failure to protect uninsured depositors would create systemic risk and significant financial and economic consequences.”

Community banks are typically located in rural areas, and they focus on the immediate needs of families and businesses.

Lankford stated that deposit insurance such as this has already encouraged large accounts holders to move their money into larger financial institutions.

“We have seen the mergers of banks over the past decade,” According to the lawmaker. “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.'”

Lankford retorted to Yellen’s statement that her agency, and other financial regulators, are not trying to force large depositors from small banks. “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, who was originally scheduled for testimony on the budget proposal submitted by the White House last week, began her remarks by informing lawmakers about how the Treasury Department, Federal Reserve and FDIC successfully protected all Silicon Valley Bank and Signature Bank deposits. Deposit Insurance Fund was responsible for providing assets for account holders at the two defunct financial institutions. This fund is funded from fees on banks.

Lankford also expressed concern about the possibility that Oklahoma’s community bank would be required to pay an additional special tax to protect their deposits. “large number of Chinese investors” “companies directly connected to the Chinese Communist Party” Who had accounts at Silicon Valley Bank. Yellen confirmed that all uninsured investor were covered “will be made whole in that bank,” Foreign depositors are welcome, as there is no equivalent in the United States. “legal basis to discriminate among uninsured depositors.”

Senator Marco Rubio (R.FL) raised similar concerns in a note to Yellen. It noted that Silicon Valley Bank had partnered to finance startups in China with Shanghai Pudon Development Bank. The lawmaker wanted to know if Chinese depositors could be allowed to withdraw their funds. “expect to receive federal reimbursements from the Deposit Insurance Fund and other federal relief.”


“From Janet Yellen acknowledges that Community Banks in Middle America may not be as protected as Silicon Valley Banks


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