U.S. Treasury Secretary Janet Yellen testifies before a Senate Finance Committee hearing on Capitol Hill in Washington, March 16, 2023.
Mary F. Calvert | Reuters
WASHINGTON — Treasury Secretary Janet Yellen said Thursday that the federal emergency actions to back up Silicon Valley Bank and Signature Bank customers could possibly be deployed again in the long run if essential.
“We have now used essential tools to act quickly to forestall contagion. And so they are tools we could use again,” Yellen said in written testimony before a House Appropriations subcommittee.
“The strong actions we have now taken make sure that Americans’ deposits are protected. Actually, we could be prepared to take additional actions if warranted,” she added.
Yellen’s testimony got here amid growing market concerns over small and mid-sized regional banks which have experienced a rush of withdrawals within the wake of the SVB collapse, and specifically whether the federal government is ready to backstop these banks within the event of a run.
In Washington, Yellen has drawn criticism from lawmakers who argue that the choice to insure deposits at SVB and Signature amounted to a reward for giant banks that took excessive risks.
Meanwhile, lawmakers say, smaller institutions are being forced to confront a spike in deposit outflows — triggered by public fears concerning the big banks — with none special help.
Regional bank stocks fell Wednesday partially due to comments Yellen made at a Senate hearing that afternoon, during which she said Treasury was not considering any plans to insure all U.S. bank deposits without congressional approval.
Thursday’s remarks appeared to shift somewhat, leaving open the prospect that Treasury could still take future emergency actions so as to prevent broader contagion and preserve large-scale financial stability.
Last week, Yellen said uninsured deposits would only be covered within the event that a “failure to guard uninsured depositors would create systemic risk and significant economic and financial consequences.”
Outside of its emergency systemic risk exception, the chief branch has little control over U.S. bank deposit insurance, since the limit is about by Congress.
The present FDIC insurance limit of $250,000 was set in 2010 as a part of the Dodd-Frank financial reforms. Congress may also temporarily suspend the limit, prefer it did in 2020 as a part of the federal government’s response to Covid-19.
But up to now, only a handful of Democrats have openly suggested Congress consider raising the limit across all deposits within the wake of the SVB collapse. Meanwhile, an influential bloc of House Republicans has already come out against any hike. This makes it difficult to check how a bill to boost the limit would pass the GOP-controlled House.