Treasury Secretary Janet Yellen suggested on Tuesday that depositors may be protected like two of the larger banks that failed earlier this month. The Secretary also took the time to emphasize the importance of all depositors in the U.S. economy.
The comments, made at a banking conference Tuesday, were intended to stress the U.S. commitment to protect the U.S. banking system — and the customers who trust their money in it.
They come nine days after the government announced extraordinary measures to guarantee all deposits at Silicon Valley Bank and Signature Bank, which collapsed when panicked depositors moved to withdraw their money.
“Similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen said in a speech to the American Bankers Association.
“The steps we took were not focused on aiding specific banks or classes of banks,” she added. “Our intervention was necessary to protect the broader U.S. banking system.”
Smaller banks have been concerned about whether their customers would get the same relief — over and above the usual insurance limits — offered to depositors at Silicon Valley Bank and Signature Bank.
If not, they worried, big customers would have an incentive to move money to larger banks, believing these larger institutions would be more likely to draw government backing.
Secretary Yellen fed that concern last week when she told a Senate committee that deposits over $250,000 at a small bank would not be guaranteed unless the bank’s failure seemed likely to cause more widespread problems.
Bank runs may be more contagious, though, than the government had expected.
Yellen said while big banks play an important role in the economy, small banks do, too.
“They can provide services that larger banks can’t replicate,” Yellen said. “They know the special features of their markets and the people who are active in those communities.”
Since the two bank failures this month, several lawmakers have called on Congress to raise the FDIC amount of protection. It currently is at 250,000 dollars. In order to raise the FDIC protected amount it would require a bill passing the House of Representatives and Senate then President Biden sign it into law.
