WASHINGTON -- Janet Yellen, Treasury Secretary, expressed confidence Tuesday in the nation's banks but indicated that she was prepared to take additional measures to protect smaller financial institutions while the Biden administration works to reduce fallout from concerns about the stability of the banking sector.
Yellen is trying to calm nerves in the face of the worst financial crisis the U.S. has seen in over a decade. She said that the confidence restored by the federal regulators and the administration have been a big help. She said that policymakers are focusing on ensuring the safety of the wider banking system.
Yellen stated that "our intervention was necessary in order to protect the broader U.S. bank system," before the American Bankers Association (the industry's largest lobbying group). If smaller institutions are affected by deposit runs, similar actions may be justified.
She said that the situation was stabilizing. The U.S. banking system is sound.
Yellen however, also stressed the seriousness of the current situation. Although the current stresses in the banking system are not as severe as the 2008 financial meltdown she said they still constitute a crisis and that there is a risk of bank run spread.
Yellen stated that this is different from 2008, 2008 was a crisis of solvency. "Contagious bank run are what we're seeing."
Rob Nichols, CEO of American Bankers Association asked Yellen if she wanted to'speculate' on what regulatory changes might be needed to prevent a similar scenario from recurring.
She stated that there was still time to assess whether adjustments in supervision or regulation are needed to address the root causes. "What I am focusing on is stabilizing the system and restoring depositor confidence.
As government officials consider additional options to stop deposits from small- and mid-sized banks, her comments come as more concerns mount that even more must be done.
Yellen stated that recent federal actions taken after the failures of Silicon Valley Bank and Signature Bank earlier this month were meant to demonstrate that the Biden administration is committed to protecting the integrity and ensuring that deposits are secure.
Federal regulators used an emergency measure to secure the deposit of Silicon Valley Bank and Signature Bank. They also initiated a Federal Reserve program to ensure other banks have funds to meet their depositors' needs. Coordinated with 11 large banks that had deposited $30 billion to First Republic, a weak regional bank.
Yellen stated that the situation required a quick response. "In the days that followed the Federal government provided just that: decisive, forceful actions to increase public confidence in the U.S. bank system and protect America's economy.
Despite all these efforts, the Fed's campaign for raising interest rates to control inflation has exposed the weaknesses in balance sheets regional banks. This has rattled investors and raised fears about the safety of deposits.
Yellen stated that the financial system is stronger than it was fifteen years ago, but also suggested an examination of the causes of recent bank failures.
She stated that it was vital to obtain a complete accounting of what transpired in these bank collapses over the next few weeks. "We will need to review our existing regulatory and supervisory systems and assess whether they are adequate for today's risks facing banks.
The Fed is the primary regulator of banks and is currently reviewing what happened to Silicon Valley Bank. It is also looking at regulation and supervision more generally.
There are also concerns about the stability of regional banks, which has led to fears that the industry might further consolidate with big banks.
Tuesday's statement by Yellen was clear. He stressed the importance of banks of all sizes, pointing out how smaller banks can have close ties with communities and provide competition to the system.
She said that while large banks are important to our economy, small and medium-sized banks also play an important part. These banks are heavily involved in traditional banking services, which provide financial support and credit to small businesses and families.
The Treasury secretary stated that the fates of the U.S. economy and the banking system are interdependent.
She said, "You can rest assured that we will continue to be vigilant."
This article first appeared in
The New York Times