SVB collapse: Yellen says US could backstop small banks if problems grow
Zachary Halaschak
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Treasury Secretary Janet Yellen said that the federal government could intervene to protect depositors at small banks if the fallout from Silicon Valley Bank’s collapse keeps growing.
Yellen made the comments in prepared remarks that she will deliver during an appearance before the American Bankers Association in Washington, D.C., on Tuesday. Yellen and other federal officials have been trying to shore up confidence in the U.S. banking system amid the SVB turmoil but have faced the criticism that they have bailed out larger banks at the expense of community banks.
SVB COLLAPSE: INFLUENTIAL LAWMAKERS CALL TO LIFT $250,000 CAP ON FDIC DEPOSIT INSURANCE
“The steps we took were not focused on aiding specific banks or classes of banks. 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,” Yellen said.
Following the failures of both SVB and Signature Bank, the federal government has stepped in to guarantee that deposits at the two failed institutions will be able to receive all of their funds above the Federal Deposit Insurance Corporation’s $250,000 cap, calming the markets some.
But as other regional banks, namely First Republic Bank, face public scrutiny, there have been some calls for the government to insure a wider range of deposits or even all bank deposits in order to prevent a broader financial crisis.
“I think the lifting the FDIC insurance cap is a good move,” Sen. Elizabeth Warren (D-MA) said over the weekend. “Now the question is where’s the right number on lifting? But recognize that we have to do this, because these banks are underregulated, and if we lift the cap, we are requiring — or relying even more heavily on the regulators to do their jobs.”
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Despite some lawmakers wanting the government to do more to intervene, others on the Right have branded the Biden administration’s moves as a bailout, although the administration says it wasn’t because the funds come from bank fees and not directly from the taxpayer and the banks’ equity was wiped out.
SVB’s parent company filed for bankruptcy on Friday, exactly a week after the federal government announced the bank had failed. This week, the collapsed firm is being auctioned off in two different pieces.