The US banking sector is “stabilizing” after the failures of Silicon Valley Bank (SVB) and Signature Bank rattled the industry, US Secretary of the Treasury Janet Yellen told a lenders’ conference on Tuesday, as leaders seek to calm global worries.
“Outflows from regional banks have stabilized” following authorities’ moves to shore up confidence and stem contagion, Yellen said in a speech to an American Bankers Association (ABA) conference in Washington.
“Our intervention was necessary to protect the broader US banking system,” she added.
Photo: Bloomberg
Washington stands ready to intervene further if needed, she said, adding that “similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
For now, the banking industry remains resilient despite the upheaval, ABA chief executive officer Rob Nichols said.
“The overall banking industry remains strong, resilient, well-capitalized, liquid, and serves customers and communities extremely well,” he said.
The failed banks and their business models are “not typical” of the thousands of others that operate in the US, he said.
“There was a particular and unusual combination of factors at play in both of these failures related to their portfolios, customer concentration and their risk management in a rising rate environment,” he said.
After SVB’s collapse, the US Department of the Treasury, the US Federal Reserve and Federal Deposit Insurance Corp 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.
“I believe that our actions reduced the risk of further bank failures,” Yellen said. “Recent developments are very different than those of the global financial crisis.”
“Back then, many financial institutions came under stress due to their holdings of subprime assets. We do not see that situation in the banking system today,” she said.
The US banking system remains sound, although authorities would need to re-examine the current regulatory regimes, she said.
Financial authorities have been scrambling to ease fears while worries of contagion spread to Europe, as Switzerland’s second-biggest bank, Credit Suisse Group AG, came under pressure.
Rival UBS Group AG has since agreed to take over Credit Suisse in a Swiss government-brokered deal after days of market upheaval.
Yellen in her speech reassured bankers of the treasury department’s commitment to safeguarding the “health and competitiveness” of the community and regional banking institutions.
She said that smaller banks boost competition in the sector and have specialized knowledge in the communities they invest in.
“A safe and sound banking system is integral to the health of the American economy,” she said. “You should rest assured that we will remain vigilant.”
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