by David Lawder
WASHINGTON (Reuters) – The U.S. banking system is stabilizing thanks to strong measures taken by the authorities, but other initiatives aimed at protecting depositors could be necessary if small establishments suffer massive withdrawals of money which could snowball , said the Secretary of State for the Treasury on Tuesday.
Speaking at the American Bankers Association, Janet Yellen said recent decisions by the US government to protect uninsured deposits at two failing banks and create a new funding program showed “a firm commitment to necessary measures to ensure that depositors’ savings and the banking system remain safe”.
“The actions we took were not intended to help specific banks or categories. Our intervention was necessary to protect the U.S. banking system as a whole,” the former Federal Reserve chair added in remarks published by the treasure.
“Similar actions might be warranted if smaller institutions were experiencing massive withdrawals of deposits posing a risk of contagion,” she continued, without specifying what exactly might follow.
Some banking associations want temporary guarantees on all US bank deposits, a measure that should then be approved by Congress under an accelerated procedure.
However, the conservative Republican Freedom Caucus group in the House of Representatives opposes extending the deposit guarantee beyond the current limit of $250,000 per person.
To guarantee the uninsured deposits of some troubled banks, Janet Yellen, President Joe Biden and the “supermajority” of the committees of the Fed and the federal bank deposit insurance authority (FDIC, Federal Deposit Insurance Corp.) should determine whether the institution can benefit from a “systemic risk exception”, which was the case for SVB and Signature.
Janet Yellen pointed out that the current situation was “very different” from the 2008 crisis, with the financial system “much stronger than it was 15 years ago”.
In the coming weeks, regulators will study what led to the failure of Silicon Valley Bank and Signature, the Secretary of State added, “but we will have to re-examine our current regulatory and supervisory systems and ask ourselves whether they are adapted to the risks that banks are now facing”.
(David Lawder, French version Laetitia Volga, edited by Jean-Stéphane Brosse)
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