Yahoo Finance Janet Yellen pledges to protect depositors at smaller US banks
The treasury secretary, Janet Yellen, pledged to protect depositors at smaller US lenders on Tuesday from “contagion” after a crisis was triggered by bank runs with customers to pulling billions in funds.
US officials have stepped in to guarantee the deposits of two banks that collapsed earlier this month and in a speech in Washington Yellen gave the clearest signal yet that they will step in again if the crisis continues.
“Our intervention was necessary to protect the broader US banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen told the American Bankers Association.
The US insures bank deposits up to $250,000 through the Federal Deposit Insurance Corporation (FDIC). Smaller US banks have been pummelled by a wave of withdrawals as depositors have worried about their banks’ finances and whether that limit will be breached.
In comments after the speech, Yellen said the current situation was different from 2008, which she described as “a solvency crisis”, while “what we are seeing is contagious bank runs”.
After Silicon Valley Bank (SVB) and Signature Bank collapsed earlier this month it was revealed that SVB had over $150bn in uninsured deposits as of the end of last year. Congress has been discussing raising the $250,000 limit. Yellen had previously said the US would guarantee uninsured deposits only after the government had invoked emergency powers – as it did with SVB and Signature. Her speech underlined the treasury’s determination to head off any further bank runs.
Yellen’s comments come as another US bank, First Republic, is struggling. Depositors are believed to have withdrawn $70bn from the bank since the collapse of SVB.
Last week Wall Street’s biggest banks mounted a $30bn rescue effort for First Republic. But on Monday the bank’s share price collapsed again, falling 46% after reports that the bank may have to raise more money.
The crisis spread over the weekend leading to the cut-price takeover of long-troubled Credit Suisse.
Yellen argued that the situation was “stabilising” and the US banking system remained “sound”. “We are squarely focused on doing our job,” she added. “And you should rest assured that we will remain vigilant.”
