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<\/a>What in the world was she thinking?\u00a0 When a bailout was hastily arranged for uninsured depositors at Silicon Valley Bank and Signature Bank, the implication was that the same thing would be done for uninsured depositors at any other banks that failed.\u00a0 But now U.S. Treasury Secretary Janet Yellen is telling us that is not actually what will happen.\u00a0 She just admitted that depositors at a failed bank will only be protected if officials determine that a \u201cfailure to protect uninsured depositors would create systemic risk and significant economic and financial consequences\u201d.\u00a0 So that means that depositors at big banks are likely to be protected and that depositors at small banks are much less likely to be protected.\u00a0 In other words, Janet Yellen just poured lighter fluid on every small bank in America.<\/p>\nWhy would anyone keep more than $250,000 in a small bank at this point when there is a very real risk of losing all of the uninsured money if the bank suddenly fails?<\/p>\n
Wealthy people are not stupid.\u00a0 They are going to move billions of dollars from small banks to large banks in the days ahead, and that is going to cause a tsunami of stress on those small banks.<\/p>\n
Does Janet Yellen even understand what she just did?<\/p>\n
During congressional testimony on Friday, Senator James Lankford asked Yellen the sort of question\u00a0that many of us have been hoping that someone would ask<\/a>\u2026<\/p>\n Republican Sen. James Lankford of Oklahoma pressed Yellen about how widely the uninsured deposit backstops will apply across the banking industry.<\/p>\n \u201cWill the deposits in every community bank in Oklahoma, regardless of their size, be fully insured now?\u201d asked Lankford. \u201cWill they get the same treatment that SVB just got, or Signature Bank just got?\u201d<\/p><\/blockquote>\n Incredibly, Yellen came right out and admitted that uninsured deposits\u00a0will only be protected under certain circumstances<\/a>\u2026<\/p>\n Yellen acknowledged they would not.<\/p>\n Uninsured deposits, she said, would only be covered in the event that a \u201cfailure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.\u201d<\/p><\/blockquote>\n If your bank fails in the days ahead, bureaucrats in Washington will get together and take a vote to determine if the uninsured depositors at your bank are important enough to protect or not.<\/p>\n Needless to say, that means that wealthy individuals with very large balances at very small banks are at great risk.<\/p>\n Senator Lankford clearly understood that Yellen and her fellow bureaucrats have now created\u00a0a two-tier banking system<\/a>\u2026<\/p>\n \u201cI\u2019m concerned you\u2019re \u2026 encouraging anyone who has a large deposit at a community bank to say, \u2018we\u2019re not going to make you whole, but if you go to one of our preferred banks, we will make you whole.\u2019\u201d<\/p><\/blockquote>\n If you have not seen the exchange between Lankford and Yellen yet, you can view it\u00a0here<\/a>\u2026<\/p>\n