Treasury Secretary Janet Yellen admitted during a Thursday Congressional hearing that Chinese Communist Party-linked businesses that had deposits in Silicon Valley Bank (SVB) will be made whole by the American banking system.
Senator James Lankford (R., Okla.) pressed Yellen on the matter during a Senate Finance Committee hearing held days after Silicon Valley Bank collapsed.
“It has been reported publicly that SVB had a large number of Chinese investors that are there, including some companies that were directly connected to the Chinese Communist Party,” Lankford said. “So what I’m asking is: will my banks in Oklahoma pay a special assessment to be able to make Chinese investors whole in Silicon Valley Bank?”
Secretary Yellen confirmed that they would.
“Uninsured investors will be made whole in that bank and I suppose that could include foreign depositors, but I don’t believe there is any legal basis to discriminate among uninsured depositors,” she said.
In recent days, over a dozen Chinese businesses have issued official statements confirming ties with SVB but noting that their exposure was insignificant.
The “special assessment” Senator Lankford was referring to is a fee that is imposed on American banks to cover depositors in the event that there is a monetary shortfall generated after the sale of assets from SVB and its insurance fund.
The Treasury Secretary brought prepared remarks with her to Thursday’s hearing on the state of America’s financial situation in light of President Joe Biden’s budget proposal introduced last week.
“I can reassure the members of the committee that our banking system remains sound and that Americans can feel confident that their deposits will be there when they need them,” Yellen told the body in prepared remarks. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”
“The government took decisive and forceful actions to strengthen public confidence.”
The remarks come just days after Yellen and federal regulators, including the Federal Deposit Insurance Corporation (FDIC), moved to shore up SVB after depositors rushed to pull funds.
While the cost of the bailout will not be directly borne by taxpayers, consumers will ultimately bear the cost in the form of increased fees charged by banks. Banks are expected to assess these increased fees in order to recoup the funds they will be required to pay to the FDIC to rebuild its Deposit Insurance Fund, which will be severely diminished by bailing out the defunct banks.
SVB went into economic free fall last Friday as frenzied withdrawal triggered a bank run. It became the second-largest bank to experience such a fate in American history and the first since the Great Recession. 93 percent of depositors held above the $250,000 threshold protected by the FDIC.