Finance Minister Yellen says the government can hold back more deposits if necessary

U.S. Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on the proposed 2024 budget request, on Capitol Hill in Washington, DC, March 16, 2023.

Andrew Caballero Reynolds | Afp | Getty Images

Treasury Secretary Janet Yellen said on Tuesday that the government is ready to provide further deposit guarantees if the banking crisis worsens.

In remarks prepared for a speech to the American Bankers Association, the former chairman of the Federal Reserve said authorities believe they have taken appropriate action to address liquidity problems in the industry but will do more if necessary .

“The steps we took were not aimed at helping specific banks or classes of banks. Our intervention was necessary to protect the broader US banking system,” said Yellen. “And similar actions may be warranted if smaller institutions face deposit runs that pose the risk of contagion.”

The comments come in response to several bank failures, most notably Silicon Valley Bank and Signature Bank. Customers were concerned that liquidity issues due to the maturity risk with banks’ deposits could lead to similar banks failing to meet deposit requirements.

In response, regulators said they would guarantee all deposits, beyond the previous $250,000 level for the two institutions. Yellen’s comments show that the authorities are willing to do the same for other institutions that need it.

A report Monday from Bloomberg indicated that regulators are studying a way to guarantee all deposits. One idea that has been put forward was to offer a tiered pricing system where depositors would pay extra to guarantee deposits over $250,000.

After the collapse of the SVB and the Signature, the Treasury, the Fed and the FDIC launched a bipartisan initiative that allowed banks to meet their short-term funding needs. One, called the Bank Term Funding Program, provided one-year loans against safe securities at full face value, while the other extended the Fed’s discount window.

Together, the programs helped ensure that banks could borrow to cover depositor withdrawals as confidence in smaller banks waned.

“The situation is stabilizing. And the US banking system remains healthy,” said Yellen. “The Fed facility and discounted lending are operating as intended to provide liquidity to the banking system. Overall deposit outflows from regional banks have stabilized.”

An exchange-traded fund that tracks medium-sized banking stocks, the SPDR Regional Banking ETF, rose 3.3% in premarket trading. The fund is down 31% over the past month.

One of the more troubled banks in the industry, First Republic, rose 14.7% premarket following Yellen’s speech and closely followed by news that Jamie Dimon, CEO of JPMorgan Chase, is advising First Republic on options to survive, including a possible capital increase or a sale .

Bank stocks have been generally volatile in recent weeks.

While the industry is considered well capitalized, the nature of that capital has created problems. Many banks have loaded longer-maturity securities such as government bonds, mortgage-backed securities, and municipal bonds. First Republic in particular has a large share of munis on its balance sheet.

As interest rates have risen over the past year, the face value of those bonds has fallen. In the case of the SVB, the bank was forced to sell much of its holdings at a loss to meet depositors’ demands, leading to another crisis of confidence. Concerns remain about large amounts of unrealized losses on bank balance sheets.

Yellen expressed her commitment to ensuring that the smaller banks remain strong.

“Treasury is committed to ensuring the continued health and competitiveness of our vibrant community and regional banking institutions,” she said.


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