Yellen: We have plan in place in case more banks fail
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Treasury Secretary Janet Yellen will tell America's top banking lobby Tuesday morning that the government has a playbook if other financial institutions, like Silicon Valley Bank, collapse and pose a risk to banking sector.
In a speech to the American Bankers Association, Yellen discusses the government's emergency rescue of SVB and Signature Bank's depositors — and says similar action could be taken in the event of a bank run.
"The steps we took were not focused on aiding specific banks or classes of banks," Yellen will say according to her prepared remarks. "Our intervention was necessary to protect the broader U.S. banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."
Her comments are aimed at reassuring depositors and Wall Street investors as the government and the nation's top bankers rush to contain the worst banking crisis in 15 years.
"The situation is stabilizing," Yellen is expected to say. "And the U.S. banking system remains sound. The Fed facility and discount window lending are working as intended to provide liquidity to the banking system. Aggregate deposit outflows from regional banks have stabilized."
The collapse of Silicon Valley Bank sent a shockwave across the global financial system earlier this month. And fears about the stability of midsize regional U.S. banks have shaken the banking sector.
First Republic Bank continues to struggle as it works to convince investors it is viable. Earlier this week, ratings agency Standard & Poor's dropped its credit rating on First Republic deeper into junk status, to B+ from BB+ and said that it remains on its negative credit watch list, "indicating we could lower the rating further if the bank is unable to demonstrate some progress in stabilizing deposits and recovering the franchise value that, in our view, have likely eroded." Last week, the nation's top 11 banks injected $30 billion of liquidity to shore up the troubled bank.
Yellen is expected to tell bankers that the Treasury Department is closely monitoring the situation and is committed to ensuring the ongoing health and competitiveness in the banking system: "A safe and sound banking system is integral to the health of the American economy. We are squarely focused on doing our job. And you should rest assured that we will remain vigilant."
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