Treasury Secretary's Stance on Emergency Actions
On Thursday, Treasury Secretary Janet Yellen revealed that the federal government is prepared to take additional emergency actions to support banks like Silicon Valley Bank and Signature Bank if required. In her written testimony before a House Appropriations subcommittee, Yellen said these tools had been used effectively in the past to prevent contagion and could be used again.
Protecting Americans' Deposits
Yellen emphasized that the Treasury's strong actions have ensured the safety of Americans' deposits. She also stated that the Treasury would be willing to take further measures if necessary. Her testimony comes amid growing concerns over the stability of small and mid-sized regional banks and the federal government's ability to backstop them in case of a run.
Criticism from Lawmakers
Some lawmakers have criticized Yellen's decision to insure deposits at Silicon Valley Bank and Signature Bank, claiming it rewards large banks that took excessive risks. They also argue that smaller institutions can only deal with increased deposit outflows with special assistance.
Regional Bank Stocks React to Yellen's Remarks
Regional bank stocks experienced a decline following Yellen's comments at a Senate hearing last week. She stated that the Treasury is only considering plans to insure some U.S. bank deposits with congressional approval, which led to market concerns.
Treasury's Readiness for Emergency Actions
Yellen's latest remarks suggest that while universal deposit insurance requires congressional approval, the Treasury is still prepared to take future emergency actions to prevent broader contagion and maintain financial stability.
Congress Holds Authority Over FDIC Insurance Limit
Due to the Dodd-Frank financial reforms, Congress has extensive control over the FDIC insurance limit, currently $250,000. Congress can temporarily suspend the limit, as it did in response to the Covid-19 crisis in 2020. However, only a few Democrats support raising the limit across all deposits, while some influential House Republicans oppose any increase. This opposition makes it challenging to imagine a bill to raise the limit passing the GOP-controlled House.