The US banking system is stabilising after strong actions from regulators, but further steps to protect bank depositors may be needed if smaller institutions suffer deposit runs that threaten more contagion, US Treasury Secretary Janet Yellen told bankers today.
Janet Yellen made her comments in prepared remarks to an American Bankers Association conference today.
She said government steps taken in recent days to protect uninsured deposits in two failed banks and create new Federal Reserve liquidity facilities have shown a "resolute commitment to take the necessary steps to ensure that depositors' savings and the banking system remain safe."
Yellen was speaking more than a week after the Federal Deposit Insurance Corp (FDIC) closed the failing Silicon Valley Bank and Signature Bank.
She said the "decisive and forceful" actions were strengthening public confidence in the US banking system and protecting the American economy.
"The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader US banking system," Yellen said in the remarks released by the Treasury.
"And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion," she added.
She said she believed the actions by the FDIC, the Federal Reserve and the Treasury had reduced the risk of further bank failures that would have imposed losses on the bank-funded Deposit Insurance Fund.
Yellen did not provide details on what further actions may be warranted.
Some banking groups have called for temporary universal guarantees on all US bank deposits, a step that requires approval by Congress under expedited procedures.
However, the conservative Republican House Freedom Caucus opposes expanding deposit guarantees beyond the FDIC's current $250,000 limit per depositor, a major roadblock to swift action aimed at stemming a deeper crisis.
Guarantees for uninsured deposits in specific troubled banks would require Yellen, President Joe Biden and "supermajorities" of the Fed and FDIC board to determine that the bank qualifies for a "systemic risk exception" - actions taken in the SVB and Signature cases.
Yellen said the Fed's new Bank Term Funding facility and discount window lending were working as intended to provide liquidity to the banking system and aggregate deposit outflows from regional banks have stabilised.
A move by large banks to deposit $30 billion into troubled First Republic Bank last week "represents a vote of confidence in our banking system," Yellen added.
She also said it was important to maintain a "dynamic and diverse banking system" to support the US economy, with large, mid-sized and small banks all playing a role to support households, small businesses and increasing competition in financial services.
Yellen said she was keeping in close contact with bankers, state and federal regulators, market participants and international counterparts about the banking situation.
She added that the situation was "very different" from the 2008-2009 global financial crisis, when subprime mortgage assets put many banks under stress.
"We do not see that situation in the banking system today. Our financial system is also significantly stronger than it was 15 years ago," she stressed.
The Treasury chief said that in coming weeks, regulators will examine the failures of Silicon Valley Bank and Signature Bank, "but we will need to reexamine our current regulatory and supervisory regimes and consider whether they are appropriate for the risks that banks face today."