Treasury Secretary Janet Yellen says the U.S. banking system is “stabilizing” after the failure of two banks and the rescue of a third institution led to concerns of a broader crisis in the industry.
In prepared remarks to an American Bankers Association summit in Washington, Ms. Yellen said Tuesday that the administration’s actions to close Silicon Valley Bank in California and Signature Bank in New York “reduced the risk of further bank failures.”
They were the second- and third-largest bank failures in U.S. history.
“Similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” she said. “The steps we took were not focused on aiding specific banks or classes of banks.”
The Treasury Department and the Federal Reserve also brokered a deal with 11 of the nation’s largest banks to deposit a total of $30 billion in the troubled First Republic Bank over the weekend.
Ms. Yellen said the support “represents a vote of confidence in our banking system.”
“Our intervention was necessary to protect the broader U.S. banking system,” she said in her prepared remarks. “The U.S. banking system remains sound. Aggregate deposit outflows from regional banks have stabilized.”
She said the Treasury Department “is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions.”
Another big development for banks will come Wednesday, when the Fed announces its decision on another increase in its benchmark interest rate.
The central bank’s series of eight rate increases in the past year is being blamed partly for causing a cash crunch in some banks that invested in long-term bonds and securities when interest rates were low.
The Fed has been raising rates to fight 40-year high inflation, which peaked at 9.1% last summer. Inflation fell to an annual rate of 6% in February, but that is still triple the Fed’s target level of 2%.
• Dave Boyer can be reached at firstname.lastname@example.org.
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