U.S. officials are prepared to take more actions if needed to ensure liquidity in the banking sector, Treasury Secretary Janet Yellen said Tuesday during an American Bankers Association meeting in Washington, DC.
She defended federal banking regulators’ actions to protect the depositors of Silicon Valley Bank and Signature Bank, saying “our intervention was necessary to protect the broader U.S. banking system.”
While conditions have improved with aggregate outflows stabilizing, “similar actions (to SVB and Signature) could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen said.
Federal regulators will need to determine the root causes for the recent bank liquidity issues, she said. “We are currently focused on the situation at hand. But we will need to reexamine our current regulatory and supervisory regimes and consider whether they are appropriate for the risks that banks face today.”
Last week, the Federal Reserve said Vice Chair Michael Barr will lead its review its oversight and regulation of Silicon Valley Bank.
During the Q&A, Yellen, who had also served as Federal Reserve Chair, said she is worried about Congress waiting until the last minute to resolve the debt limit. The last time that the U.S. came close to default before legislators acted, the sovereign credit rating of the U.S. was downgraded. A failure to raise the debt limit would be “absolutely catastrophic,” Yellen said.
Investors appeared to be more confident in the banking sector on Tuesday, the KBW Nasdaq Bank Index (BKX) gained 4.7% in late morning trading, after falling 28% in March. The SPDR S&P Bank ETF (KBE) rose 4.5%.
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