Janet Yellen indicates further US support for deposits with smaller banks

Janet Yellen will signal further US government support for deposits with smaller US banks, if necessary, a shift that seeks to protect parts of the country’s banking system struggling with the recent financial turmoil.

Amid mounting evidence that panicked depositors are pulling savings from regional banks, the US Treasury Secretary will say guarantees offered to all depositors at the bankrupt Silicon Valley Bank could be replicated at other institutions if necessary.

“The steps we took were not aimed at helping specific banks or classes of banks,” Yellen is expected to say in a speech to the American Bankers Association on Tuesday.

“Our intervention was necessary to protect the broader US banking system. And similar actions may be warranted if smaller institutions face deposit runs that carry the risk of contagion.”

The US Treasury Department cooperated with the Federal Reserve and the Federal Deposit Insurance Corporation in providing guarantees for all deposits, including uninsured deposits, at Silicon Valley Bank and Signature Bank, both of which failed this month. In addition, the Fed announced a new facility to boost liquidity for troubled banks.

Yellen will also defend the “decisive” and “forceful” steps regulators have taken to avert a wider banking crisis in the US, though the problems facing smaller institutions are far from resolved. A $30 billion lifeline put together by Wall Street banking executives — and encouraged by the U.S. government — last week failed to stop a sharp sell-off in First Republic Bank shares.

However, Yellen will suggest that the US is relatively reassured by the market developments of recent days. “The situation is stabilizing. And the US banking system remains healthy,” she will say. “The Fed facility and discount loans are working as intended to provide liquidity to the banking system. Overall deposit outflows from regional banks have stabilized. “

“We are completely focused on doing our job,” she adds. “And rest assured that we will remain vigilant.”

The Treasury Secretary will also emphasize the importance of small and medium-sized banks to the US economy. A major concern in recent days has been that the current crisis would strengthen larger financial institutions at the expense of smaller ones.

“Large banks play an important role in our economy, but so do small and medium-sized banks,” Yellen will say. “These banks are heavily involved in traditional banking services that provide essential credit and financial support to families and small businesses. They also increase competition in the banking sector and often have specialized knowledge and expertise in the communities in which they invest.”

Yellen’s comments suggest that the Biden administration expects any additional actions to be aimed at supporting individual banks that may be struggling. However, US officials are also debating whether to take additional steps to restore confidence, including raising or removing the $250,000 limit on FDIC-insured deposits.

Such a move would require support from Congress unless officials in the Biden administration find a way to pass the measure through executive action.






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