Yellen says US Treasury is ready for additional deposit actions if needed

Federal emergency measures to support Silicon Valley Bank and Signature Bank clients may be used again in the future, according to Treasury Secretary Janet Yellen. She said this on Thursday.

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"We swiftly stopped the disease spread using key tools. In written testimony before a House Appropriations subcommittee, Yellen stated that they were tools that could be used again.

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"The decisive actions we have taken guarantee American deposits' security. We would undoubtedly be ready to take additional measures if necessary,” she continued.

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The market has become increasingly concerned about small and mid-sized regional banks that have seen a spike in withdrawals following the SVB collapse. In particular, whether the federal government is ready to support these banks in the event of a run. This is why Yellen's testimony was given at a time when these concerns are growing.

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Legislators in Washington have criticized Yellen, claiming that her decision to protect deposits at SVB and Signature amounted to rewarding large banks for taking unnecessary risks.

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Legislators assert that smaller institutions are left on their own to deal with a surge in deposit outflows brought on by public anxiety about large banks.

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Yellen's remarks at a Senate hearing last week, in which she stated that Treasury is not exploring any plans to ensure all U.S. bank deposits are secure without congressional approval, contributed to the decline in regional bank stocks on Wednesday.

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She stated to MPs last week that uninsured deposits would only be paid if not doing so would result in "systemic risk and major economic and financial ramifications."

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In Thursday's statements, Treasury officials left open the possibility that, despite the fact that universal deposit insurance cannot be implemented without a bill from Congress, they are still prepared to take emergency measures in the future to prevent further contagion and maintain broad financial stability.

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Congress has considerable discretion over the FDIC insurance cap, currently set at $250,000 as part of the Dodd-Frank banking regulations. As part of the government's response to COVID-19 in 2020, Congress temporarily suspended the limit.

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This time, only a small number of Democrats have publicly asked Congress to raise the cap on all deposits. Yet, a significant group of House Republicans has already spoken out against any increase. Since the GOP controls the House, it is challenging to see how a ceiling raise bill would pass.