The recent failures of Silicon Valley Bank and Signature Bank shook the industry, but the US financial sector is “stabilizing,” Treasury Secretary Janet Yellen will say at a summit on Tuesday.
As a result of the failures, many clients of smaller banks withdrew their funds and deposited them in bigger institutions, which were deemed to be too enormous for the government to fail to save them.
However, as a result of government actions to boost trust and contain contagion, “aggregate deposit outflows from regional banks have stabilized,” according to Yellen’s remarks.
“Our intervention was necessary to protect the broader US banking system,” she will say in a speech to the American Bankers Association’s Washington DC summit.
“And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” she adds in the excerpts.
After SVB’s collapse, the Treasury, Federal Reserve and Federal Deposit Insurance Corporation set out plans to ensure its customers would be able to access their deposits. A similar exception was announced for Signature Bank.
The Fed also introduced a new lending tool for banks in an effort to prevent a repeat of SVB’s quick demise, and has since launched a drive with other major central banks to improve banks’ access to liquidity.
