Washington –
Treasury Secretary Janet Yellen predicted a calm on Tuesday after the recent failure of a regional bank, but bankers have warned of additional relief if new failures of smaller institutions endanger financial stability. He said the measures “could be justified.”
Speaking at the National Bankers Association, Yellen said overall “the situation is stable.”
“The U.S. banking system is still healthy,” Yellen said, pointing to a stark contrast between recent events and the 2008 financial crash that caused trillions of dollars in economic losses worldwide.
“This is different from 2008,” she said. “2008 was a solvency crisis, but what we are seeing now is a contagious bank run.”
Yellen’s remarks come after a string of troubling bank developments this month.
Silicon Valley Bank, based in Santa Clara, California, collapsed on March 10 after depositors rushed to withdraw their money amid fears over the bank’s health. It was the second largest bank failure in US history. Regulators convened the following weekend to announce that a New York-based signatory bank had also gone bankrupt. They said all depositors at both banks, including those holding more than US$250,000 in uninsured funds, will be covered by federal deposit insurance.
And last week, a third San Francisco-based bank, First Republic Bank, was bolstered with US$30 billion in funding from 11 of the largest US banks to prevent its collapse.
The government is now determined to restore public confidence in the banking system and prevent further disruptions. The Justice Department and Securities and Exchange Commission have launched investigations into the failure of Silicon Valley banks, and President Joe Biden has called on Congress to tighten rules on local banks and impose tougher penalties on failed executives.
Yellen said the government intervention was necessary to “protect the broader banking system” and may require more relief efforts, saying the government remains closely monitoring the banking sector. He pointed out that there is
“Similar actions may be justified if smaller financial institutions suffer deposit executions that pose a risk of contagion,” she said.
When asked by association president Rob Nichols what policy adjustments needed to be made in light of recent events, Yellen said, “At this point, I’d rather speculate as to what those adjustments might be. No, on is stabilizing the system.”
Yellen met with the Senate Finance Committee last week and told upset bank depositors and investors that the U.S. banking system “remains healthy” and that Americans “can feel confident” about the safety of their deposits. gave an optimistic reassurance.
She will appear before two more congressional panels this week in the Senate and House, inevitably facing more questions about the nature of the bank failure and the government’s efforts to quell it. Become.
“Let me be clear: the government’s recent actions demonstrate our steadfast commitment to taking the necessary steps to ensure depositors’ savings and the security of the banking system,” she said. .
Details of the bank’s collapse have yet to be released, but Democratic lawmakers and some economists believe that parts of a sweeping 2010 law aimed at preventing future financial crises were repealed in 2018. said to be the main cause of the system failure.
At a panel discussing the state of the banking system ahead of President Yellen’s speech, Zions Bank President Scott Anderson said he did not believe the 2018 rollback was related to the bank’s failure.
“Congress needs to be careful,” Mr. Anderson said. “They need to find out what happened. They need to have in-depth discussions and in-depth discussions. But they shouldn’t jump to conclusions quickly. I don’t think it shows that there is a problem with the regulation, which we have now.”
