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US Treasury's Yellen says banking sector 'sound'

March 21, 2023

During a summit in Washington, D.C., US Treasury Secretary Janet Yellen said her department took firm action to protect the banking system after the collapse of Silicon Valley Bank and Signature Bank.

US Treasury Secretary Janet Yellen during a recent Senate testimony
Yellen believes government action prevented a bigger banking crisisImage: Andrew Caballero-Reynolds/AFP/Getty Images

US Treasury Secretary Janet Yellen told bankers on Tuesday that the financial system is "sound" after recent upheaval.

While insisting that the situation was "stabilizing," Yellen said that additional rescue measures "could be warranted.

The failures of Silicon Valley Bank and Signature Bank earlier this month have led to fears that the US banking system faces an imminent widespread crisis.

Yellen defends federal response 

During a summit held by the American Bankers Association in Washington, D.C., Yellen defended the federal government's response to the upheaval.

The official argued that the intervention was necessary to "protect the broader banking system." The federal government has worked to protect uninsured customer deposits at the two failed banks, along with new Federal Reserve lending tools. 

Yellen said that similar measures could be needed in the future.

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

The Treasury Secretary said that she did not want to "speculate" on the exact form of the potential measures. "What I'm focused on is stabilizing our system and restoring the confidence of depositors," she said.

"Let me be clear: The government's recent actions have demonstrated our resolute commitment to take the necessary steps to ensure that depositors' savings and the banking system remain safe," she added.

SVB's demise sparked by bank run

The collapse of Silicon Valley Bank (SVB) in California on March 10 was the second-largest in US history. A run on deposits and concerns over the bank's financial outlook ultimately led to SVB's demise. 

A logo of SVB, which was based out of Santa Clara, California
SVB was a popular bank among the tech start up communityImage: David 'Dee' Delgado/REUTERS

Days after SVB's collapse, officials in New York closed Signature Bank, which was being investigated by the US Justice Department over insufficient anti-money laundering efforts. 

San Francisco-based First Republic Bank has also faced peril in recent days. A group of 11 larger banks, including Wells Fargo and Bank of America, then deposited $30 billion ($27.8 billion) into First Republic Bank to shore up its financial situation.

Europe also facing banking woes

Europe also faces banking turmoil, with Switzerland's largest bank UBS rescuing its embattled rival Credit Suisse in a takeover deal on Sunday. UBS will purchase Credit Suisse for 3 billion Swiss Francs ($3.2 billion, €3.2 billion).

Swiss bank UBS announces takeover of Credit Suisse

Despite the deal, the Swiss Bankers Association projected confidence Tuesday that the banking sector still had a "prosperous future." The association said Swiss credit supply would not be impacted by the challenges faced by Credit Suisse. 

wd/nm (Reuters, AFP, dpa, AP)