Treasury Secretary Janet Yellen said on Tuesday the government could repeat the drastic steps it recently took to protect bank depositors if smaller banks were at risk.
“Our intervention was necessary to protect the U.S. banking system as a whole, and such actions could be justified if smaller institutions were faced with a run on deposits, which poses a risk of contagion,” Yellen said, according to excerpts from a speech she scheduled to give. at the Association of American Bankers conference in Washington on Tuesday.
Earlier in March, US authorities took extraordinary steps to build confidence following the failure of Silicon Valley Bank and Signature Bank. Regulators have guaranteed insured and uninsured deposits at the two institutions, and the Federal Reserve has launched a new bailout for lenders to help them cope with deposit withdrawals.
The moves were intended to stem the tide of customers taking refuge in banks deemed too big to fail, and by Friday Treasury officials announced that deposits at small and medium-sized banks had begun to stabilize.
However, officials have begun to explore whether they can temporarily expand federal deposit insurance to cover all deposits. A coalition of mid-sized banks says the move is necessary to avert a potential crisis.
The head of the treasury did not touch on this issue in excerpts published by the Ministry of Finance.
Yellen’s comments follow two weeks of turmoil in global markets and heightened concerns about financial stability following the precipitous collapse of US banks and a historic weekend deal that saw UBS Group agree to buy its troubled Swiss rival Credit Suisse. .
The move by US authorities to clean up the bank failures was followed by an agreement last week between the country’s largest banks to place a $30 billion deposit with First Republic Bank, another mid-sized hesitant lender. The move marked an attempt to restore the confidence of depositors fleeing regional banks.
Despite the gesture, First Republic continued to struggle on Monday, and its shares fell to new lows.
JPMorgan Chase chief executive Jamie Dimon has led plans for the banks to convert some or all of the $30 billion they invested last week in First Republic into a capital injection, people familiar with the matter said.
Yellen, in a prepared speech to the American Bankers Association, plans to defend the recent government measures as a quick and necessary response.
“The federal government has taken just that: strong and decisive action to build public confidence in the US banking system and protect the American economy,” she says.
These moves, she adds, “reduced the risk of further bank failures that would have hurt the Deposit Insurance Fund.”
Yellen also noted that the government hopes to keep the role of small and medium-sized lenders within the larger financial system.
“Large banks play an important role in our economy, as do small and medium-sized banks,” she said. “The Treasury is committed to ensuring the continued health and competitiveness of our vibrant community and regional banking institutions.”