Yellen acknowledges that at-risk banks will be treated differently depending on policymakers' and Biden's criteria

During her appearance in the Senate, the Treasury Secretary hinted that the savings of small and medium-sized bank customers are not 100% guaranteed.

Treasury Secretary Janet Yellen acknowledged during her appearance before the Senate that banks at risk of bankruptcy will not receive the same treatment from the Biden Administration and economic authorities. In response to questions from the Republican legislator James Lankford, Yellen stated that the special conditions that applied to Silicon Valley Bank and Signature would only be applied if a majority of the FDIC directors, a supermajority of the Federal Reserve Board and she, along with President Biden, felt that they should. In addition, Yellen admitted that Chinese investors linked to the Chinese Communist Party with savings in the intervened Californian bank will get all their money back.

Risk for small and medium-sized banks

During the session, Lankford questioned the Treasury Secretary about the criteria the Administration will apply to small and medium-sized banks at risk of failure and whether their customers' money is fully insured, as was the case with SVB and Signature deposits. "Will the deposits in every community bank in Oklahoma, regardless of their size, be fully insured now? Are they fully covered, every bank, every community bank in Oklahoma, regardless of the size of the deposit? Will they get the same treatment that SVB [Silicon Valley Bank] just got or Signature Bank just got?"

In response, Yellen hesitantly acknowledged that this will not be the case:

A bank only gets that treatment if a majority of the FDIC board, a supermajority of the Fed board, and I, in consultation with the president, determine that the failure to protect uninsured depositors, would create systemic risk and significant economic and financial consequences.

Banking discrimination by the Administration

The Oklahoma senator went on to say that this approach is causing people with savings in small or regional banks to withdraw their money from these institutions and deposit it in large banks. This results from mergers and takeovers triggered by the 2008 financial crisis.

So what is your plan to keep large depositors from moving their funds out of community banks into the big banks? We have seen the mergers of banks over the past decade, and I’m concerned you’re about to accelerate that by encouraging anyone who has a large deposit in a community bank to say, "We’re not gonna make you whole, but if you go to one of our preferred banks, we will make you whole at that point."

Chinese investors will get their money back

The Treasury Secretary explained that what the senator was suggesting isn't the Biden administration's intention and pointed out that depositors take their money out of small banks out of fear. "That is happening because depositors are concerned about the bank failures that have happened and whether or not other banks could also fail…," she said, without responding to Lankford's accusations.

She did acknowledge, without mentioning them openly, that investors, both individuals and companies linked to the Chinese Party who held savings in SVB and Signature will get their money back. "Uninsured investors will be made whole in that bank and I suppose that could include foreign depositors but I don't believe there's any legal basis to discriminate."