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Yellen says that compared to 2008, the bank situation is stabilizing

By 03/21/2023 3:01 PMNo CommentsBy YidInfo Staff

After recent regional bank failures, Treasury Secretary Janet Yellen attempted to project calm on Tuesday.

Nevertheless, she warned a group of bankers that extra rescue measures “may be necessary” if any further failures at smaller institutions endanger financial stability.

Yellen added that overall, “the situation is stabilizing” in her address to the American Bankers Association.

And the U.S. banking system remains solid,” Yellen added, clearly contrasting the current situation from the 2008 financial crisis, which resulted in trillions of dollars worth of economic losses throughout the globe.

She noted, “This is different from 2008.” 2008 was a solvency crisis; currently, infectious bank runs are happening.

Following a slew of alarming financial developments this month, Yellen made these statements.

Santa Clara, California-based Silicon Valley Bank failed on March 10 due to depositors rushing to withdraw funds due to bank stability concerns. The bank collapse was the second-largest in American history.

The following weekend, regulators met and declared that New York-based Signature Bank had also failed. They claimed that federal deposit insurance would protect all depositors at both banks, including those who held uninsured funds exceeding $250,000.

Meanwhile, San Francisco-based First Republic Bank received $30 billion in funding from 11 of the largest U.S. banks this week to stop a third bank from failing.

The government is now committed to regaining public trust in the banking system and averting further unrest.

President Joe Biden has urged Lawmakers to increase regulations on smaller banks and to impose harsher penalties on executives of failed banks.

The Justice Department and the Securities and Exchange Commission have also opened investigations into the collapse of Silicon Valley Bank.

Yellen noted that the government is still closely watching the banking industry and that additional rescue actions may be required to “defend the broader financial system.”

The official said similar actions might be required if smaller institutions have deposit runs that increase the possibility of contagion.

I don’t want to guess at this point on what those modifications may be, Yellen responded when asked by the association’s president, Rob Nichols, what policies need to be changed in light of recent occurrences. I’m concentrating on keeping our system stable.

Last week, Yellen testified before the Senate Finance Committee, assuring nervous bank depositors and investors that the nation’s financial system “remains sound” and that people “may feel secure” about the security of their accounts.

She will testify before legislative committees in the Senate and the House twice this week when she will unavoidably be grilled further on the nature of the bank collapses and government efforts to contain them.

She added that the government’s recent actions had shown our unwavering commitment to taking the necessary measures to guarantee the safety of depositors’ deposits and the banking sector.

While information about the bank collapses is still being made public, Democratic politicians and some economists claim that a 2018 rollback of several provisions of a comprehensive 2010 law designed to avert another financial crisis was a significant factor in the institutional failures.

Before Yellen’s address, Scott Anderson, president of Zions Bank, stated his opinion that the 2018 rollback is unrelated to the bank failures during a panel discussion on the state of the banking system.


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