US banking system stabilizing, Yellen to tell bankers

US Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on the proposed budget request for 2024, on Capitol Hill in Washington, DC, March 16, 2023. PHOTO AFP WASHINGTON - The US banking system is stabilizing after strong actions from regulators but further steps to protect bank depositors may be warranted if smaller institutions suffer deposit runs that threaten more contagion, US Treasury Secretary Janet Yellen plans to tell bankers on Tuesday.

In excerpts of prepared remarks to an American Bankers Association conference, Yellen said that the 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 depositors' savings and the banking system remain safe. Yellen, speaking more than a week after the Federal Deposit Insurance Corp FDIC closed the failing Silicon Valley Bank and Signature Bank, will say that the decisive and forceful actions were strengthening public confidence in the US banking system and protecting the American economy.

We didn't focus on aiding specific banks or classes of banks, so we didn't take any action. In the remarks released by the Treasury, Yellen said that our intervention was necessary to protect the broader US banking system. If smaller institutions suffer from deposit runs that pose the risk of contagion, similar actions could be warranted. She said that the actions of 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's excerpts did not provide any information on what further actions may be warranted.

ALSO READ: SVB shockwaves rattle global banks in grip of contagion fears.

Some banking groups have called for temporary universal guarantees on all US bank deposits, a move that requires approval by Congress under expedited procedures. The conservative Republican House Freedom Caucus opposes expanding deposit guarantees beyond the FDIC's current $250,000 limit, a major roadblock to action aimed at stemming a deeper crisis.

Guarantees for uninsured deposits in troubled banks would require Yellen, President Joe Biden and supermajorities of the Fed and FDIC board to determine that the bank qualifies for 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.

A move by large banks to deposit $30 billion into the troubled First Republic Bank last week is a vote of confidence in our banking system, Yellen said.

She said that 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 in supporting households, small businesses and increasing competition in financial services.