U.S. Treasury Secretary Janet Yellen told lawmakers on Wednesday that she was not considering or discussing the possibility of “full insurance” of bank deposits without Congressional approval as a way to stop the panic on the market caused by the failure of two major banks.
Yellen’s comments ahead of the Senate Appropriations Subcommittee hearing dashed industry hopes of a full government guarantee to stave off the threat of further withdrawals of depositors’ funds from banks, and contributed to a decline in 15.5% of shares in troubled bank First Republic on Wednesday.
Some banking groups have asked the Biden administration and the Federal Deposit Insurance Corporation (FDIC) to temporarily guarantee all US bank deposits. The move will help ease the crisis of confidence that followed the Silicon Valley Bank bankruptcy, they said.
Reuters reported on Tuesday that Treasury Department officials had discussed raising the insurance cap, which now stands at $250,000 per saver, without congressional approval following the SVB bankruptcies. and Signature.
Yellen said she thinks Congress “should” consider changes to FDIC deposit insurance, but declined to say what changes she thinks would be warranted. However, responding to the question of whether Congressional approval is necessary to ensure the full volume of deposits in American banks, Yellen replied that she does not envisage such a step and analyzes the banking risks in case per case.
“I haven’t considered or discussed anything related to comprehensive insurance or deposit guarantees,” she said, adding that if we’re talking about a systemically important bank whose failure possible threat of mass panic, then the White House will most likely resort to an exception. to protect all contributors. According to Yellen, this will have to be “decided on a case-by-case basis”.
She said the definition does not only apply to large or medium-sized banks, but can also apply to small banks if there is a risk of causing panic among depositors.
“The failure of a small bank, a public bank, could also trigger a run on other banks,” she said.
Shares of First Republic Bank, which have lost most of their value since the start of the banking crisis, fell 15.5% late Wednesday to $13.33 on Yellen’s comments. The California bank’s attempts to secure a capital injection have fueled speculation that it may need government support.
Yellen told the Senate Subcommittee on Financial Services and Government Appropriations that banks across the country are worried about recent bankruptcies and are hoarding their cash to prevent further withdrawals.
She attributed the need to protect uninsured deposits at SVB to its “very unusual” technology-driven business model, high percentage of uninsured deposits and depositor withdrawal rates.
“To my knowledge, we’ve never seen deposits go as fast as Silicon Valley Bank,” Yellen said.
Yellen also said the Treasury Department is working to restore the ability of the Financial Stability Oversight Council (FSOC) to designate nonbank financial institutions as systemically important, subjecting them to stricter regulation.
This reflects fears that financial risks will migrate to less regulated hedge funds and so-called “shadow banking” institutions.
