Yellen hails actions taken to strengthen confidence in US banking system
Washington, Mar 21 (EFE).- US Treasury Secretary Janet Yellen said here Tuesday that the US banking system remains sound and that the federal government’s “decisive and forceful” actions in the wake of problems this month at two financial institutions have restored public confidence and safeguarded the American economy.
“The situation is stabilizing. And the US banking system remains sound,” Yellen said in a speech at the American Bankers Association’s Washington DC Summit, referring to the rapid collapse of California-based Silicon Valley Bank and New York-based Signature Bank on March 10 and March 12, respectively.
She stressed that the present situation cannot be compared to the 2008 global financial crisis, noting that numerous financial institutions came under stress at that time due to their holdings of sub-prime assets.
The Treasury secretary added that the US financial situation today is much stronger than before “in large part due to post-crisis reforms that provided stronger capital standards, among other important improvements.”
Yellen also defended the federal government’s two-pronged approach to prevent contagion at other small and regional banks following the failures of SVB and Signature Bank.
She said its decision to work with the Federal Reserve and the Federal Deposit Insurance Corporation to guarantee all deposits at those two institutions – beyond the $250,000 cap – “was necessary to protect the broader US banking system” and was not aimed at “aiding specific banks or classes of banks.”
“Similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen said. “I believe that our actions reduced the risk of further bank failures that would have imposed losses on the (FDIC’s) Deposit Insurance Fund, which is paid for through fees on insured banks.”
The Treasury secretary also recalled the creation of a new Federal Reserve lending facility – the Bank Term Funding Program – that provides additional liquidity to the banking system and “is designed to help banks meet the needs of all of their depositors.”
Referring to another troubled mid-sized financial institution, she noted that 11 banks, including the “very largest” entities, have pumped $30 billion into San Francisco-based regional lender First Republic Bank and said that support “represents a vote of confidence in our banking system.”
First Republic’s share price was up more than 30 percent Tuesday following Yellen’s remarks, although it is still down nearly 90 percent since the start of the month.
While Yellen sought to assuage concerns about the banking system in her remarks, she also said the Treasury Department was continuing to monitor the situation closely and pledged to get to the bottom of what happened in the two bank failures.
Separately, the Treasury secretary said a “dynamic and diverse” banking system is crucial to the health of the US economy.
“Large banks play an important role in our economy, but so do small- and mid-sized banks. These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses,” she said. EFE