Yellen: Treasury will offer more support to U.S. banks, if needed

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Yellen: Treasury will offer more support to U.S. banks, if needed

By Geoffrey Smith -- Treasury Secretary Janet Yellen is set to bolster hopes of more official support for U.S. banks later, in a speech that talks up the importance of midsized banks in particular.

According to the text of a speech that Yellen will give to the American Bankers Association, Yellen will defend as “necessary” the steps taken to support Silicon Valley Bank after its collapse earlier this month, after a massive run by its depositors.

“Similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen will say, according to various reports citing the advance text.

The Treasury had intervened along with the Federal Reserve and Federal Deposit Insurance Corporation to guarantee all of SVB’s deposits after it failed earlier this month, despite the fact that due to its almost exclusively corporate customer base, nearly all of its deposits were above the $250,000 federally insured limit.

However, that hadn’t been enough to stop sharp falls in the stock prices of other midsized banks, some of whom are seen – like SVB as being structurally short of liquid assets that they could sell to meet a deposit run.

The speech comes a day after Bloomberg reported that Treasury officials are looking at ways to extend full insurance of bank deposits across the whole system, at least temporarily, while a more durable solution to the problems of regional banks is found.

Fear that other regional banks could go the same way as SVB had triggered sharp falls in several midsized banks in recent days, notably First Republic Bank (NYSE: FRC ). These were exacerbated by the hasty rescue of Credit Suisse (SIX: CSGN ) by Swiss authorities at the weekend. However, almost all of them had shown signs of stabilizing on Monday.

Yellen will say later that “aggregate deposit outflows from regional banks have stabilized” after a record injection of liquidity from the Federal Reserve through its standing facilities last week. Yellen will note that “the Fed facility and discount window lending are working as intended to provide liquidity to the banking system.”


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