Yellen says banking stabilising, US may intervene more if needed
published : 22 Mar 2023 at 03:45
WASHINGTON - The United States banking sector is "stabilizing" after the recent failures of Silicon Valley Bank and Signature Bank rattled the industry, Treasury Secretary Janet Yellen told a lenders' conference Tuesday, as leaders seek to calm global worries.
Stock markets extended gains with US and European indices closing higher as fears of a financial crisis eased, after the US Federal Reserve and other major central banks kicked off a coordinated effort this week to boost lenders' access to liquidity.
The collapses had caused a crisis of confidence, with many customers of similarly sized banks withdrawing their money and depositing it in larger institutions -- considered too big for the government not to bail them out if they faced failure.
But "outflows from regional banks have stabilised" following authorities' moves to shore up confidence and stem contagion, said Yellen in a speech to an American Bankers Association (ABA) conference in Washington.
"Our intervention was necessary to protect the broader US banking system," she added.
She suggested that the United States stands ready to intervene further if needed, noting that "similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."
For now, the banking industry remains resilient despite the upheaval, said ABA chief executive Rob Nichols at the event.
"The overall banking industry remains strong, resilient, well-capitalised, liquid and serves customers and communities extremely well," he said.
He stressed that the failed banks and their business models are "not typical" of the thousands of others that operate in America.
"There was a particular and unusual combination of factors at play in both of these failures related to their portfolios, customer concentration and their risk management in a rising rate environment," he said.
After SVB's collapse, the Treasury, Federal Reserve and Federal Deposit Insurance Corporation set out plans to ensure its customers would be able to access their deposits. A similar exception was announced for Signature Bank.
The Fed also introduced a new lending tool for banks in an effort to prevent a repeat of SVB's quick demise, and has since launched a drive with other major central banks to improve banks' access to liquidity.
- 'Different' situation -
"I believe that our actions reduced the risk of further bank failures," Yellen said.
She stressed that "recent developments are very different than those of the global financial crisis."
"Back then, many financial institutions came under stress due to their holdings of subprime assets. We do not see that situation in the banking system today," she said.
For now, she maintained that the US banking system remains sound, although authorities will need to re-examine the current regulatory regimes.
But there have been fears over which lender could be the next domino to fall, with 11 US banks announcing last week they would deposit $30 billion into First Republic amid worries surrounding the bank.
Shares of First Republic closed around 30% higher on Tuesday, leading a rally among regional banks.
A coalition of midsized US banks earlier asked federal regulators to guarantee all of their customers' deposits for two years, a move that would help to halt an "exodus of deposits" from smaller banks, Bloomberg reported Saturday.
Financial authorities have been scrambling to ease fears while worries of contagion spread to Europe, as Switzerland's second biggest bank Credit Suisse came under pressure.
Rival UBS has since agreed to take over Credit Suisse in a government-brokered deal after days of market upheaval.
While US markets have picked up, analysts say investors remain wary.
Yellen, in her speech, reassured bankers of the Treasury Department's commitment to safeguarding the "health and competitiveness" of the community and regional banking institutions.
She noted that smaller banks boost competition in the sector and have specialised knowledge in the communities they invest in.
"A safe and sound banking system is integral to the health of the American economy," she said. "You should rest assured that we will remain vigilant."
- united states