In response to recent bank failures, US Treasury Secretary Janet Yellen has assured that the government is prepared to provide additional guarantees for deposits if necessary to prevent contagion and maintain stability in the banking system. Speaking at the American Bankers Association, Yellen stated that the actions taken so far have aimed to protect the broader US banking system rather than specific banks.
"And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion," Yellen said. She emphasized that the US banking system remains sound, and the measures implemented have stabilized the situation.
Recent bank failures, including those of Silicon Valley Bank and Signature Bank, have caused concerns over liquidity problems and the potential inability of similar institutions to meet deposit requirements. Regulators have responded by guaranteeing all deposits, surpassing the previous $250,000 limit for the two banks. Yellen's comments suggest that authorities are willing to extend this guarantee to other institutions if needed.
A report from Bloomberg indicated that regulators are considering a tiered pricing system, where depositors would pay extra to guarantee deposits above $250,000. Following the collapse of SVB and Signature Bank, the Treasury, Federal Reserve, and Federal Deposit Insurance Corp. launched a two-pronged initiative that allowed banks to meet short-term borrowing needs. These programs helped banks borrow to meet depositor withdrawals as confidence in smaller banks decreased.
Yellen noted that regulators are evaluating whether stronger regulations are necessary to prevent similar situations in the future. The Federal Reserve is conducting an internal probe into the oversight of SVB and Signature Bank, with results expected to be released by May 1.
In her speech, Yellen also discussed her commitment to ensuring the ongoing health and competitiveness of community and regional banking institutions. She previously reassured bank depositors and investors in a Senate Finance Committee hearing that the US banking system "remains sound" and that Americans "can feel confident" about the safety of their deposits.
As investigations continue into the bank failures, some Democratic lawmakers and economists argue that the 2018 rollback of portions of a 2010 law intended to prevent future financial crises was a primary cause of the institutional failures. Scott Anderson, president and CEO of Zions Bank, however, does not believe the rollback is related to the bank failures, urging Congress to have a thorough debate and discussion before jumping to conclusions.
