Yellen tries to reassure banks after comment on deposit insurance

Treasury Secretary Janet Yellen told US lawmakers that regulators would be prepared for further steps to protect the banking system if warranted, a day after her remarks on national deposit insurance rattled markets.

Her reassurance came at the start of a hearing Thursday before a subcommittee of the House Appropriations Committee, when she read prepared remarks that were almost identical to what she delivered a day earlier on the Senate floor, but added: “Of course, we We will be prepared to take further action if necessary.”

That appeared to be aimed at avoiding a repeat of the market volatility when she said Wednesday that Treasury officials had neither considered nor explored the possibility of temporarily extending federal insurance for all U.S. bank deposits without congressional approval.

Yellen’s fresh comments come amid scrutiny of how regulators have responded to a series of bank failures and growing concerns about the stability of the financial system. She and Federal Reserve Chairman Jerome Powell said after the collapse of Silicon Valley Bank earlier this month that regulations needed to be strengthened, while stressing that the banking system was sound.

Although policymakers are still watching for signs of banking instability, the issue did not appear to be a major item on the agenda of members of the House subcommittee Thursday, who only briefly touched on the topic while spending most of the hearing questioning Yellen and White House Budget Director Shalanda Young on the deficit and debt ceiling.

Investors were looking for clarity on regulators’ willingness to support bank deposits after sudden outflows contributed to the collapse of multiple U.S. regional lenders this month. The KBW Bank index on Thursday ended down 1.7 percent after swinging when Yellen’s prepared remarks were released.

Seeking clarity

A day earlier, Yellen said that guaranteeing all deposits nationwide would require legislation, although regulators were prepared to repeat – on a case-by-case basis – a bailout of depositors if an individual bank failure threatened to trigger a wider contagion of bank failures. escapes.

According to Andy Laperriere, head of US policy for investment bank Piper Sandler & Co. and a former adviser to former House Republican leader Dick Armey — only Congress can change the current $250,000 cap on Federal Deposit Insurance Corp. deposits.

On Tuesday, speaking to the American Bankers Association, Yellen said regulators were prepared to repeat the steps they took earlier this month, when California-based SVB and New York’s Signature Bank closed their doors in the face of a massive flight of depositors. In these cases, to prevent contagion, the FDIC invokes the so-called systemic risk exception to guarantee all deposits at these banks.

Treasury officials are reviewing whether regulators may temporarily extend federal insurance to all U.S. bank deposits, Bloomberg News reported earlier this week. This has encouraged some observers to think that the government may make a radical change in policy.

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