US banking sector 'stabilizing' after turmoil: Yellen

US banking sector 'stabilizing' after turmoil: Yellen

US Treasury Secretary Janet Yellen said deposit outflows from regional banks have steadied, after authorities took action to shore up confidence
US Treasury Secretary Janet Yellen said deposit outflows from regional banks have steadied, after authorities took action to shore up confidence. Photo: Andrew Caballero-Reynolds / AFP/File
Source: AFP

PAY ATTENTION: Enjoy reading our stories? Join YEN.com.gh's Telegram channel for more!

The US banking sector is "stabilizing" after the recent failures of Silicon Valley Bank and Signature Bank rattled the industry, Treasury Secretary Janet Yellen will tell a summit Tuesday, according to prepared remarks.

The collapses caused a crisis of confidence, with many customers of similarly sized banks withdrawing their money and depositing it in larger institutions -- considered too big for the government not to bail them out if they faced failure.

But "outflows from regional banks have stabilized" following authorities' moves to shore up confidence and stem contagion, according to Yellen's remarks.

"Our intervention was necessary to protect the broader US banking system," she will say in a speech to the American Bankers Association's (ABA) meeting in Washington.

"And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion," she adds.

Read also

US government seeks to avoid 'bailout' label amid banking turmoil

For now, the banking industry remains resilient despite recent upheaval, said ABA chief executive Rob Nichols at the event.

PAY ATTENTION: Click “See First” under the “Following” tab to see YEN.com.gh News on your News Feed!

"The overall banking industry remains strong, resilient, well-capitalized, liquid and serves customers and communities extremely well," he added, noting that authorities took swift action to prevent a bad situation from spreading.

After SVB's collapse, the Treasury, Federal Reserve and Federal Deposit Insurance Corporation 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.

Reducing risk

"I believe that our actions reduced the risk of further bank failures," according to Yellen's remarks.

Read also

Asian stocks drop despite Credit Suisse buyout, central banks' pledge

She maintains that the US banking system remains sound.

But there are fears over which lender could be the next domino to fall, with 11 US banks announcing last week they would deposit $30 billion into First Republic amid worries surrounding the bank.

A coalition of midsized US banks has also asked federal regulators to guarantee all of their customers' deposits for two years, a move that would help to halt an "exodus of deposits" from smaller banks, Bloomberg reported Saturday.

Financial authorities have been scrambling to ease fears while worries of contagion spread to Europe, as Switzerland's second biggest bank Credit Suisse came under pressure.

Rival UBS has since agreed to take over Credit Suisse in a government-brokered deal after days of market upheaval.

While US and European markets picked up on Monday, analysts say investors remain wary.

But Yellen, in her speech, is set to try to reassure bankers of the Treasury Department's commitment to safeguarding the "health and competitiveness" of the community and regional banking institutions.

Read also

Asian markets extend global rally as banking sector fears ease

"You should rest assured that we will remain vigilant," according to her speech.

New feature: Сheck out news that is picked for YOU ➡️ click on “Recommended for you” and enjoy!

Source: AFP

Authors:
AFP avatar

AFP AFP text, photo, graphic, audio or video material shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium. AFP news material may not be stored in whole or in part in a computer or otherwise except for personal and non-commercial use. AFP will not be held liable for any delays, inaccuracies, errors or omissions in any AFP news material or in transmission or delivery of all or any part thereof or for any damages whatsoever. As a newswire service, AFP does not obtain releases from subjects, individuals, groups or entities contained in its photographs, videos, graphics or quoted in its texts. Further, no clearance is obtained from the owners of any trademarks or copyrighted materials whose marks and materials are included in AFP material. Therefore you will be solely responsible for obtaining any and all necessary releases from whatever individuals and/or entities necessary for any uses of AFP material.