US banking system ‘sound and resilient’ says Fed Chairman Jerome Powell

Federal Reserve Chairman Jerome Powell on Wednesday called the U.S. banking system “strong and resilient,” expressing confidence in the nation’s financial system and the safety of bank deposits less than two weeks after the bankruptcy of Silicon Valley Bank, the country’s second largest bank. largest bank collapse in US history.

“All depositors’ savings in the banking system are safe,” Powell added at a news conference in Washington, DC.

Powell characterized the recent financial troubles as limited to a small segment of the banking sector, but defended the swift and extraordinary actions taken by the Fed and other federal agencies to protect the financial system.

“In the past two weeks, a small number of banks have experienced serious difficulties,” Powell said. “History has shown that isolated banking problems, if left unaddressed, can undermine confidence in sound banks and threaten the ability of the banking system as a whole to play its vital role in supporting the savings and credit needs of households and businesses.”

Powell’s comments came minutes after the Fed announced a 0.25% hike in its benchmark interest rate, intensifying the central bank’s battle against inflation despite concerns that past rate hikes may have triggered the country’s banking crisis.

Inflation has fallen significantly since a summer peak, but remains more than triple the Fed’s target of 2%.

“Inflation remains too high,” Powell said. “We remain strongly committed to bringing inflation back to our target of 2%.”

However, the rapid rise in interest rates caused the value of Silicon Valley Bank’s bonds to plummet, accelerating bankruptcy and massive damage to the financial industry, including the collapse of New York-based Signature Bank.

Fearing a wider spread of the crisis, the Federal Deposit Insurance Corporation, the Treasury Department and the Fed took a big step by telling Silicon Valley Bank and Signature Bank depositors that the FDIC would protect all of their funds, including those held by the exceed $250,000 limit.

Some members of Congress have criticized Powell for allegedly lax banking supervision at the Federal Reserve, as well as an aggressive series of rate hikes, which they say led to the collapse of Silicon Valley Bank.

On Wednesday, Senator Elizabeth Warren, D-Mass., and Senator Rick Scott, R-Fla., proposed legislation that would create an independent inspector general to oversee the Federal Reserve.

Powell said Wednesday that the Federal Reserve is monitoring developments in the financial sector and remains open to further action.

“We will continue to closely monitor conditions in the banking system and are prepared to use all our resources to keep it safe and sound,” said Powell.

He continued, “We are determined to learn lessons from this episode and to prevent events like this from happening again.”