Yellen says US will take more action to protect smaller banks if needed
Treasury chief Yellen expresses confidence in US financial system after bank failures
Treasury Secretary Yellen questioned over bank failures during Senate hearing
Fox News' Chad Pergram discusses Treasury Secretary Janet Yellen's comments during a Senate hearing over the Silicon Valley Bank’s failures, during which lawmakers expressed concerns.
Treasury Secretary Janet Yellen said Tuesday the government is prepared to take additional actions to protect smaller banks as the U.S. financial system confronts the worst crisis since 2008.
In remarks prepared for delivery to the American Bankers Association, Yellen expressed confidence in the nation's banks but suggested that further steps to protect banks may be necessary in the event of a deposit run.
"The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system," Yellen said, according to an excerpt of her speech. "And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."
U.S. regulators took extraordinary steps earlier in March to contain the fallout from the collapse of Silicon Valley Bank and Signature Bank and shore up wavering confidence in the financial system, including protecting all deposits at the two institutions – even those holding funds that exceeded the FDIC's $250,000 insurance limit.
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Janet Yellen, US Treasury secretary, during a House Ways and Means Committee hearing in Washington, DC, US, on Friday, March 10, 2023. (Al Drago/Bloomberg via Getty Images / Getty Images)
The Federal Reserve also launched a new emergency backstop for lenders to help them meet deposit withdrawals under favorable terms.
The moves were intended to staunch a flow of funds from small and regional U.S. lenders as customers rushed to banks deemed too big to fail.
Although Treasury said that deposits are small and mid-sized banks have begun to stabilize, U.S. officials are reportedly studying whether they can temporarily expand federal deposit insurance to cover all deposits, according to Bloomberg News. A group of mid-sized banks has argued that is necessary to prevent bank runs for the next two years.
The former Fed chief did not address the matter in her speech.
Employees walk in front of a sign outside of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California. (Justin Sullivan/Getty Images / Getty Images)
"The situation is stabilizing. And the U.S. banking system remains sound," Yellen said. "The Fed facility and discount window lending are working as intended to provide liquidity to the banking system. Aggregate deposit outflows from regional banks have stabilized."
Yellen's comments come amid fresh turmoil in the banking sector and heightened fears over a broader financial crisis.
All eyes are currently on San Francisco-based First Republic Bank, which boasts about $213 billion in assets and a roster of wealthy clients. The mid-sized lender received a $30 billion cash infusion from 11 of the nation's biggest banks last week, but liquidity fears remain and there are new efforts underway to stabilize the bank, according to The Wall Street Journal.
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JPMorgan Chase CEO Jamie Dimon is leading discussions with the top executives of other big banks about how to boost First Republic's capital. Among the options on the table are an investment in First Republic by the banks themselves; a sale; or an outside liquidity injection, the Journal reported.
A First Republic Bank branch in New York, US, on Friday, March 10, 2023. (Photographer: Jeenah Moon/Bloomberg via Getty Images / Getty Images)
The concerns at First Republic and other mid-sized regional banks began after the historic failure of Silicon Valley Bank – the 16th largest lender in the country – earlier this month following a liquidity crunch. It marked the largest U.S. bank failure since the global financial crisis in 2008.
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SVB, which largely catered to tech companies, venture capital firms and high-net-worth individuals, saw a huge boom in deposits during the pandemic, with its assets surging from $56 billion in June 2018 to $212 billion in March 2023. The bank responded by investing a large chunk of that cash into long-term U.S. Treasury bonds and other mortgage-backed securities. However, that strategy backfired when the Fed embarked on the most aggressive interest-rate hike campaign since the 1980s, and the value of those securities tumbled.
That coincided with a decline in available funding for startups, which started drawing down more of their money to cover their expenses, forcing the lender to sell part of its bond holds at a steep $1.8 billion loss. When depositors realized that SVB was in a precarious financial situation, a bank run ensued.