The Atlanta Journal-Constitution
Yellen: U.S. ready to protect smaller banks if necessary
Policymakers focus on keeping financial institutions secure.
Trea- WASHINGTON — sury Secretary Janet Yellen expressed confidence in the nation’s banks Tuesday but said she is prepared to take additional actions to safe- guard smaller financial institutions as the Biden administration and federal regula- tors work to contain fallout from fears over the stability of the banking system.
Yellen, seeking to calm nerves as the U.S. financial system faces its worst tur- moil in more than a decade, said the steps the administra- tion and federal regulators have taken so far have helped restore confidence, but policymakers remain focused on making sure the broader bank- ing system remains secure.
“Our intervention was necessary to protect the broader U.S. banking system,” Yellen said in prepared remarks to be delivered to the Washington meeting of the Amer- ican Bankers Association, the industry’s leading lob- bying group. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
She added: “The situation is stabilizing. And the U.S. bank- ing system remains sound.”
The comments come as government officials contemplate additional options to stem the flows of depos- its out of small and medium-size banks, and as con- cerns grow that more will need to be done.
Yellen said recent federal actions after the failure of Silicon Valley Bank and Signature Bank were intended to show the Biden administration was dedicated to protecting the integrity of the system and ensuring that deposits were secure.
In the past 10 days, federal regulators have used an emergency measure to guarantee the deposits of Silicon Valley Bank and Signature Bank, initiated a new Federal Reserve program to make sure other banks could secure funds to meet the needs of their depositors and coordinated with 11 big banks that deposited $30 billion into First Republic, a wobbly regional bank.
“The situation demanded a swift response,” Yellen is set to say. “In the days that followed, the federal government delivered just that: decisive and forceful actions to strengthen public confidence in the U.S. banking system and protect the American economy.”
Despite those efforts, the Fed’s campaign to raise interest rates to tame inflation has exposed weaknesses in the balance sheets of regional banks, rattling investors and raising fears deposits are not safe.
The recent volatility has led to calls for a review of the nation’s financial regulations and raised doubts about whether the existing methods of supervising banks are sufficient.
The uncertainty about regional banks has also led to concerns the industry will further consolidate among big banks.
Yellen made clear Tuesday banks of all sizes are important, highlighting how smaller banks have close ties to communities and bring competition to the system.