Wally Adeyemo at CNBC’s Delivering Alpha, Sept. 28, 2022.
Scott Mlyn | CNBC
WASHINGTON — The record-setting variety of emergency loans that were made to banks this week by the Federal Reserve was key to stabilizing withdrawals from small and mid-sized U.S. banks, Treasury Deputy Secretary Wally Adeyemo told CNBC Friday.
The impact of the swift actions by federal regulators last weekend to stabilize the U.S. banking system helped contain the fallout but were still rippling through the economy almost every week later.
The markets still have not fully priced within the federal aid or the $30 billion 11 banks deposited into First Republic Bank to assist boost confidence into the system, he said.
“It can take time for markets to meet up with the actions which have been taken by us and by these banks,” Adeyemo said on CNBC’s “Squawk on the Street.” “And what we have done now could be given these institutions time to think through how they organize their businesses going forward.”
Following the collapse of California-based Silicon Valley Bank and Latest York-based Signature bank last Friday and Sunday, respectively, regulators announced a series of emergency measures to stabilize the nation’s banking system.
They included guaranteeing the deposits of consumers on the two failed banks; making a recent fund, the Bank Term Funding Program, to make short-term loans to banks on generous terms; and easing conditions on the Fed’s traditional overnight bank lending arm, the so called “discount window.”
The results of the actions was a dramatic turnaround within the fortunes of diverse banks, said Adeyemo. That included banks that had anticipated potential mass withdrawals, and pledged collateral ahead of time expecting to wish emergency loans.
“While quite a lot of banks coming into the weekend prepositioned the necessity to get more liquidity, what we found over the course of the week is that they’ve had to make use of less and fewer of it,” said Adeyemo. “And now that we have seen a stabilization when it comes to deposits to those institutions.”
But while the trends were moving in the correct direction, the sum of money banks borrowed previously week through Wednesday from the Fed’s discount window set a recent record at $153 billion, in accordance with the Fed’s weekly report.
The previous record for discount window loans was $111 billion, set at the peak of the financial crisis in 2008.
The identities of the banks that borrowed won’t be made public for an additional two years. However the sum suggests the banking sector shouldn’t be quite stable yet.
The continuing questions on bank stability dovetail with one other query arising out of the Fed actions. Whether uninsured deposits at banks that fail in the longer term can be covered the identical way they were at SVB and Signature.
“Are all uninsured depositors within the U.S. banking system protected at once?” CNBC’s Sara Eisen asked Adeyemo.
The reply was that, for now, this can be a Biden administration goal, but not a reality.
“Ultimately, the president has made clear our goal is to guard depositors to be certain that that they’ve the cash they should run their businesses, and be certain that their families are taken care of,” said Adeyemo.