US will intervene if needed to protect smaller banks: Yellen

BLOOMBERG

Treasury Secretary Janet Yellen said that the US government could repeat the drastic actions it took recently to protect bank depositors if smaller lenders are threatened.
“Our intervention was necessary to protect the broader US banking system, and similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen will say, according to excerpts from remarks.
US authorities took extraordinary steps earlier in March to bolster confidence following the failure of Silicon Valley Bank and Signature Bank. Regulators guaranteed insured and uninsured deposits at the two institutions, and the US Federal Reserve launched a new backstop for lenders to help them meet deposit withdrawals.
The moves were designed to stem the flow of customers taking refuge in banks seen as too big to fail, and Treasury officials were declaring that deposits at small and mid-sized banks had begun to stabilise.
Still, US officials have begun studying whether they can temporarily expand federal deposit insurance to cover all deposits. A coalition of mid-sized banks has argued that step is necessary to head off a potential crisis.
The Treasury chief didn’t address that issue in the excerpts released by the Treasury Department.
Yellen’s comments come on the heels of two weeks of tumult in global markets and heightened worries over financial stability after the rapid-fire collapse of the US banks and a historic deal that saw UBS Group AG agree to buy its troubled Swiss rival Credit Suisse AG.
Actions by US authorities to stem the fallout from the bank failures were followed by an agreement by the nation’s biggest banks to deposit $30 billion with First Republic Bank, another teetering mid-sized lender. The move marked an effort to restore confidence among depositors fleeing from regional banks.
Despite the gesture, First Republic continued to struggle with its shares falling to new lows.
According to people familiar with the matter, JPMorgan Chase & Co Chief Executive Officer Jamie Dimon was leading plans to have banks convert some or all of the $30 billion they deposited with First Republic into a capital infusion.
Yellen, in the prepared remarks to the American Bankers Association, plans to defend the recent government measures as a swift and necessary response.
“The federal government delivered just that: decisive and forceful actions to strengthen public confidence in the US banking system and protect the American economy,” she’ll say.
The steps, she will add, “reduced the risk of further bank failures that would have imposed losses on the Deposit Insurance Fund.”
Yellen also made a point of saying the government hoped to preserve the role of small and mid-sized lenders within the larger financial system.
“Large banks play an important role in our economy, but so do small- and mid-sized banks,” she said. “Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions.”