Recent Government Actions
Yellen praised the government's recent efforts to protect uninsured deposits in two failed banks and create new Federal Reserve liquidity facilities, highlighting their commitment to maintaining a safe banking system.
Strengthening Public Confidence
Yellen asserted that the "decisive and forceful" actions have helped strengthen public confidence in the U.S. banking system while safeguarding the American economy.
Potential Actions for Smaller Institutions
Yellen mentioned that similar interventions could be necessary if smaller institutions face deposit runs that risk causing contagion.
Reducing Bank Failure Risks
The combined actions of the FDIC, Federal Reserve, and Treasury have reportedly reduced the risk of further bank failures that could harm the Deposit Insurance Fund.
Possible Universal Deposit Guarantees
Some banking groups have called for temporary universal guarantees on all U.S. bank deposits, which would require congressional approval and face opposition from conservative Republicans.
Troubled Banks and Systemic Risk Exceptions
Guarantees for uninsured deposits in specific troubled banks would need the agreement of Yellen, President Biden, and "supermajorities" of the Fed and FDIC board under a "systemic risk exception."
Confidence in the U.S. Banking System
Yellen cited the stabilization of aggregate deposit outflows and a $30 billion deposit by large banks into First Republic Bank as evidence of confidence in the U.S. banking system.
Maintaining a Diverse Banking System
Yellen emphasized the importance of a diverse banking system, with large, mid-sized, and small banks supporting households, small businesses, and competition in financial services.
Differences from the 2008-2009 Crisis
Yellen pointed out that the current situation differs from the 2008-2009 global financial crisis, noting that the financial system is significantly stronger now.
Upcoming Regulatory Examinations
In the coming weeks, regulators will examine Silicon Valley Bank's and Signature Bank's failures and consider whether current regulatory and supervisory regimes are appropriate for today's banking risks.