US Treasury Secretary Janet Yellen says government could repeat actions to protect bank depositors

The United States government could repeat the drastic actions it recently took to protect bank depositors if smaller lenders are threatened, according to Treasury Secretary Janet Yellen. Speaking at an American Bankers Association conference in Washington, Yellen said that “similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”

Yellen emphasized that the current situation is notably different from the global financial crisis more than a decade ago, which was an issue with solvency. Today’s challenge is “contagious bank runs,” and it’s vital that lenders have access to adequate liquidity, she said. She added that the federal government “is resolutely committed” to mitigating financial-stability risks where necessary and that “the public should have confidence in our banking system.”

Yellen defended the recent government measures as a swift and necessary response to the collapses of Silicon Valley Bank and Signature Bank. Regulators guaranteed insured and uninsured deposits at the two institutions. The Federal Reserve also launched a new backstop for lenders and altered rules at its emergency lending facility — the so-called discount window — to help them meet deposit withdrawals.

“We see the situation as having improved,” with aggregate outflows from deposits having stabilized, Yellen said. Officials will continue to monitor the situation, she also said.

Yellen also reiterated her call for Congress to increase or suspend the federal debt limit, calling that “utterly essential.” While President Joe Biden stands ready to engage with lawmakers on addressing fiscal sustainability, that ought to be done through the regular appropriations process, not under the threat of a “catastrophic” default, she said.

The coalition of mid-sized banks has pressed for an expansion of federal deposit insurance to cover all deposits, but Yellen didn’t address the issue. US officials have begun studying whether they can temporarily expand that coverage. Yellen also wouldn’t “speculate” on what kind of regulatory changes might be needed in the wake of this month’s bank collapses. “We are currently focused on the situation at hand,” she said in her prepared remarks. “But we will need to reexamine our current regulatory and supervisory regimes and consider whether they are appropriate for the risks that banks face today.”

Yellen concluded by saying that the US financial system was much stronger than in 2008 due in part to post-crisis reforms that enforced higher capital requirements for US lenders. She added that the government hoped to preserve the role of small and mid-sized lenders within the larger financial system, saying that “Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions.”