The following is a transcript of an interview with Treasury Secretary Janet Yellen that aired on “Face the Nation” on Sunday, March 12, 2023.
MARGARET BRENNAN: Mark Strassmann, thank you. Now on to Treasury Secretary Janet Yellen. Madam secretary. Good morning.
TREASURY SECRETARY YELLEN: Hello, Margaret.
MARGARET BRENNAN: I want to go straight there, because the markets will soon be reopening to trading. Should the government intervene and take emergency measures because of the failure of SVB?
TREASURY SECRETARY JANET YELLEN: Well, let me say that the US economy relies on a safe and strong banking system that can meet the credit needs of our households and businesses. So any time a bank, especially one like Silicon Valley Bank with billions of dollars in deposits, fails, that’s clearly a concern. From the perspective of depositors, many of whom may be small businesses, they rely on access to their funds to be able to pay the bills they have, and they employ tens of thousands of people across the country. We heard from these applicants and other affected individuals over the weekend. So let me say that I worked all weekend with our banking regulators to design appropriate policies to deal with this situation. I can’t really give more details at the moment. But what I want to do is point out that the US banking system is really safe and well capitalized, it’s resilient. In the aftermath of the 2008 financial crisis. New controls were put in place for better oversight of capital and liquidity, and were tested in the early days of the pandemic, and proved resilient so Americans could have confidence in the security and soundness of our banking system.
MARGARET BRENNAN: Can you tell if these issues were unique to Silicon Valley Bank? Or can you say if there will be other regional bank failures?
SECRETARY YELLEN: Well listen, let me say that we want to make sure that the problems that exist in one bank don’t spread to others that are healthy. And the goal is always supervision and regulation is to ensure that contagion cannot occur.
MARGARET BRENNAN So I know you don’t want to go into detail. But obviously there are a lot of questions out there this morning. Your UK counterpart said the UK government had ruled out bailing out the UK branch of Silicon Valley Bank. Have you also ruled out that kind of government intervention?
SECRETARY YELLEN: Well, let me clarify that during the financial crisis, there were systemic big bank investors and owners who were bailed out, and we’re certainly not looking. And the reforms that have been put in place mean that we are not going to do it again. But we care about depositors and strive to meet their needs.
MARGARET BRENNAN: For those depositors, about 85% of SVB accounts were uninsured. And, as you said, many different tech companies have relied on them. Do you believe that depositors should be fully reimbursed? Are they going?
SECRETARY YELLEN: Look, I’m not going to comment on the details of the situation at this point. I just want to say that we are very aware of the problems that depositors will have, many of which are small businesses that employ people across the country. And of course that’s a significant concern, and working with regulators to try to address those concerns.
MARGARET BRENNAN: Do you expect a deal or something to reassure markets before Asia opens tonight and US markets open tomorrow?
SECRETARY YELLEN: We are certainly working to remedy the situation in a timely manner.
MARGARET BRENNAN: Now I know you know this part of the country so well, because you served in the San Francisco Fed years ago. The tech sector is already suffering from layoffs, it’s already under pressure, and it really is the hub of American innovation. How serious will the consequences be for this innovation?
SECRETARY YELLEN: So I really can’t comment on what the impact will be. I think it depends on how this situation is resolved. And that’s something we’re working on. But well aware that many start-ups have deposits and venture capitalists have deposits with this bank that have been affected by its bankruptcy. So that’s something we’re trying to resolve.
MARGARET BRENNAN: You know, when you look at the bigger picture, this bank had massive exposure to this particular industry. How did government regulators miss – miss this risk?
SECRETARY YELLEN:
Well, you know, I would say, I would say that although the tech sector has suffered from a downturn, and it has had significant layoffs. This bank’s problems, based on reports on its condition, suggest that because we are in a higher interest rate environment, the assets it holds, many of which are Treasury assets or backed securities to mortgages that are guaranteed by the government, are losing market value, and the problems of the tech sector are not at the heart of this bank’s problems.
MARGARET BRENNAN
Was it just bad management? I know there’s – there’s a lot of outcry and scrutiny of what’s happened over the past few days. The CEO of this bank reportedly sold about $3 million worth of stock 24 hours before the bank went bankrupt. For the people at home, can you – how do you explain if it was a mismanagement issue? Pursue.
(TRANSPARENCY)
SECRETARY YELLEN:
Margaret, FDIC – The FDIC has placed this bank in receivership and will be working over the weekend to manage its resolution. And in the meantime, I really can’t comment on the specifics of this bank’s situation.
MARGARET BRENNAN
You mentioned the interest rate environment we find ourselves in. The Federal Reserve has raised rates aggressively in an attempt to gain control. Do you think this poses an additional risk for the financial sector? I mean, is this for the people at home, do they see this as a unique case? Or should they fear that others will also feel the effects?
SECRETARY YELLEN:
We have to be – Americans have to be confident that the banking system is safe and sound, that it can meet the credit needs of households and businesses, and that depositors don’t have to worry about losing access to their money. And those are goals that we all embrace as financial regulators in this – in this economy, and we will work to try to make sure that happens.
MARGARET BRENNAN
Do you foresee what is happening now making it harder for Fed Chairman Powell to pursue the kind of rate hikes he has indicated he is planning? I mean, he said this week, the road is still bumpy with inflation. Is his toolbox shrinking because of the risks we’re seeing right now?
SECRETARY YELLEN:
Well, Margaret, the Federal Reserve is independent and responsible for judging the appropriate course of action, dealing with financial risks, and also meeting its inflation and employment goals. And I’m not going to comment on what the appropriate answer is for them. They will assess this in the days and weeks to come.
MARGARET BRENNAN
Because for many who look at the degree of risk there, it raises the question of whether the Fed will be able to continue what it is doing. They are watching this looming deadline for the debt ceiling, and the political fight over it is on the calendar. And this battle with inflation and it looks like there are growing risks to the direction of the economy. How do you see this big picture right now?
SECRETARY YELLEN:
Well look, overall, I think we have an extremely strong economy. We just learned on Friday that this month over 300,000 new jobs have been created and labor force participation has increased. So, despite all this job creation, we have seen a slight easing of labor market pressures in the form of a slightly higher unemployment rate. Inflation is down, the economy is doing well. And we need to ensure that our financial system remains strong and able to support a strong economy. But I think this economy is in good shape.
MARGARET BRENNAN: Would you be open to a foreign bank coming in as a white knight to help stabilize the situation with Silicon Valley Bank?
SECRETARY YELLEN: So it’s really a decision for the FDIC, as they decide the best course of action to resolve this business. And I’m sure they are considering a wide range of options available. This would include acquisitions.
MARGARET BRENNAN
Alright, we’ll watch this. And, Madam Secretary, I just wanted to ask you about the $7 trillion budget that the president just proposed? Is there any part of this proposal that should be kept?
SECRETARY YELLEN:
Well, look, you know, it’s a budget that invests in our economy in a way that will strengthen its growth. It invests in education, in child care, in research and development. It alleviates the costs that households face for health insurance for prescription drugs. It strengthens the Medicare Trust Fund for decades to come. And it pays for those investments and cuts budget deficits by nearly $3 trillion over the next 10 years by asking high- and super-high-income individuals and businesses to pay their fair share. So yes, I think this budget contains many important proposals that are critical to the health of the US economy and will strengthen its fiscal position for a long time to come.
MARGARET BRENNAN: Madam Secretary, I’m told you’re running out of time, and I have to leave it at that. Thank you for your work and your time this morning.
SECRETARY YELLEN: Thank you very much, Margaret.