U.S. Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on the proposed fiscal year 2024 budget request on March 16, 2023, on Capitol Hill in Washington.
Andrew Caballero-Reynolds | Afp | Good pictures
Treasury Secretary Janet Yellen said Tuesday that the government is prepared to provide additional guarantees for deposits if the banking crisis worsens.
In prepared remarks for a speech at the American Bankers Association, the former Federal Reserve chairman said officials believe they have taken adequate steps to prevent liquidity problems in the sector, but will do more if necessary.
“The actions we have taken are not focused on helping specific banks or classes of banks. Our intervention is necessary to protect the broader American banking system,” Yellen said. “Similar actions are warranted if smaller firms experience deposit runs that pose a risk of contagion.”
The comments come in the wake of several bank failures, notably Silicon Valley Bank and Signature Bank. Customers were concerned that liquidity problems due to term risk in the banks’ reserves may result in similar banks not being able to meet deposit requirements.
In response, the Treasury, the Fed, and the FDIC launched a two-pronged effort to allow banks to meet their short-term credit needs. One, called the Bank Term Funding Program, offered one-year loans against collateralized securities at full face value, and the other widened the Fed’s discount window.
“The situation is stabilizing. And the US banking system is still sound,” Yellen said. “Central bank facility and discount window loans are working to provide liquidity to the banking system. Gross deposit outflow from regional banks has been confirmed.”
The SPDR Regional Bank ETF, an exchange-traded fund that tracks mid-cap bank stocks, rose 3.3% in premarket trading. The fund has fallen 31% in the past month.
First Republic, one of the sector’s most troubled banks, rose 14.7% premarket following Yellen’s speech and JPMorgan Chase CEO Jamie Dimon is advising First Republic on options for survival, including a potential capital raise or sale. .
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