Amid U.S. Banking Crisis, Treasury Secretary Yellen Comitted to Protect Deposits

Paigambar Mohan Raj
Source: Forbes

The U.S. banking crisis has caused a lot of distress among investors. Two top-tier banks failed within a span of just a few days. However, the banking sector is slowly stabilizing after regulators stepped in to protect deposits. However, if smaller institutions experience deposit runs, additional measures to protect bank depositors might be necessary. That is what U.S. Treasury Secretary, Janet Yellen plans to tell bankers on Tuesday. Worries of further contagion still loom fresh.

Yellen said that the steps taken in the US banking crisis show a “commitment to take the necessary steps to ensure that depositors’ savings and the banking system remain safe.” Yellen’s statements are taken from excerpts of her prepared remarks at an American Bankers Association conference.

More steps needed to thwart more contagions from the U.S. banking crisis

Yellen stated that the steps “were not focused on aiding specific banks or classes of banks.” Yellen further added, that their “intervention was necessary to protect the broader U.S. banking system.”

Likewise, if smaller banks have deposit runs that raise the possibility of a chain reaction, similar actions might be necessary. She asserted that she thought the FDIC (Federal Deposit Insurance Corporation), Federal Reserve, and Treasury’s measures had decreased the likelihood of further bank failures.

Nonetheless, Yellen’s comments lacked specifics regarding any potential follow-up steps. Certain banking organizations have demanded that all deposits in U.S. banks receive temporary universal guarantees. The hardline Republican House Freedom Caucus, however, is opposed to extending bank guarantees over the existing $250,000 per depositor cap set by the FDIC. The development creates a significant barrier to quick action intended to stop a more serious calamity.

For certain failing banks to receive guarantees for uninsured deposits, Yellen, President Joe Biden, and “supermajorities” of the Fed and FDIC board must decide that the bank is eligible for a “systemic risk exception.”