Treasurys Yellen says committed to protecting bank deposits, more actions may be warranted

By David Lawder

WASHINGTON (Reuters) – The U.S. banking system is stabilizing after strong actions from regulators, but further steps to protect bank depositors may be warranted if smaller institutions suffer deposit runs that threaten more contagion, U.S. Treasury Secretary Janet Yellen plans to tell bankers on Tuesday.

In excerpts of prepared remarks to an American Bankers Association conference, Yellen said government steps taken in recent days to protect uninsured deposits in two failed banks and create new Federal Reserve liquidity facilities have shown a “resolute commitment to take the necessary steps to ensure that depositors savings and the banking system remain safe.”

Yellen, speaking more than a week after the Federal Deposit Insurance Corp (FDIC) closed the failing Silicon Valley Bank and Signature Bank, will say the “decisive and forceful” actions were strengthening public confidence in the U.S. banking system and protecting the American economy.

“The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” Yellen said in the remarks released by the Treasury. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”

She said she believed the actions by the FDIC, the Federal Reserve and the Treasury had reduced the risk of further bank failures that would have imposed losses on the bank-funded Deposit Insurance Fund.

Yellens excerpts did not provide details on what further actions may be warranted.

Some banking groups have called for temporary universal guarantees on all U.S. bank deposits, a step that requires approval by Congress under expedited procedures. However, the conservative Republican House Freedom Caucus opposes expanding deposit guarantees beyond the FDICs current $250,000 limit per depositor, a major roadblock to swift action aimed at stemming a deeper crisis.

Guarantees for uninsured deposits in specific troubled banks would require Yellen, President Joe Biden and “supermajorities” of the Fed and FDIC board to determine that the bank qualifies for a “systemic risk exception” – actions taken in the SVB and Signature cases.

Yellen said the Feds new Bank Term Funding facility and discount window lending were working as intended to provide liquidity to the banking system and aggregate deposit outflows from regional banks have stabilized.

A move by large banks to deposit $30 billion into troubled First Republic Bank last week “represents a vote of confidence in our banking system,” Yellen added.

She also said it was important to maintain a “dynamic and diverse banking system” to support the U.S. economy, with large, mid-sized and small banks all playing a role to support households, small businesses and increasing competition in financial services.

(Reporting by David Lawder; Editing by Lincoln Feast.)