- Janet Yellen has signalled that the U.S. government will offer further assurance to deposits at smaller American banks if needed. In a shift to protect parts of the banking system in financial turmoil, the Treasury Secretary said that the same guarantees that were offered at the failed Silicon Valley Bank could be extended to other institutions.
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Yellen praised regulators for avoiding a widespread banking crisis, but small banks still have issues. A failed $30 billion bailout caused a stock sell-off in First Republic Bank, but Yellen's remarks led to a stock rebound. She emphasized the importance of small and mid-sized banks, as larger banks could have an unfair advantage. To restore faith in the banking system, officials may raise or abolish the $250,000 FDIC limit for insured deposits.
Why it matters
This month, US authorities took remarkable measures to shore up trust in the banking system after the fall of Silicon Valley Bank and Signature Bank. Regulators guaranteed deposits, both insured and uninsured, in the two banks. Additionally, the Federal Reserve set up a new backstop for lenders and changed the rules of its emergency lending facility to help them manage withdrawals.
