U.S. Treasury Secretary Janet Yellen said the federal government can guarantee all its deposits if a small bank “suffers a deposit run that poses a contagion risk.” The government recently protected all deposits of Silicon Valley Bank and Signature Bank after they failed.
The U.S. government is prepared to guarantee more deposits if necessary
U.S. Treasury Secretary Yellen said Tuesday in a speech to the American Bankers Association that the government is prepared to provide additional deposit guarantees if the banking crisis worsens.
Following the collapse of several major banks, including Silicon Valley Bank and Signature Bank, the government stepped in and guaranteed all deposits at the two failed banks beyond the normal Federal Deposit Insurance Corporation (FDIC) coverage limit of $250,000. The former Federal Reserve Chairman explained.
The steps we took were not focused on helping any particular bank or class of banks. Our intervention was necessary to protect the broader U.S. banking system. And similar measures may be justified when smaller financial institutions suffer deposit outflows that risk becoming contagious.
“The situation is stabilizing. And the U.S. banking system remains healthy,” Yellen insisted.
Nevertheless, Treasury officials are exploring ways to temporarily extend FDIC insurance coverage to all deposits, Bloomberg reported Monday.
Last week, the U.S. Coalition of Midsize Banks asked federal regulators to require FDIC insurance coverage on all deposits for the next two years. The group said it is “essential to restore depositor confidence and avert panic and further crises before other banks fail.” Congressman Blaine Rutkemeyer has also asked the government to temporarily insure all bank deposits in the country to prevent small banks from failing.
However, Yellen last week rejected the idea of the government providing a guarantee for all deposits in the event of a future bank failure.
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