Deposit flows in the U.S. banking system have stabilized in the last week after a historic run on deposits at Silicon Valley Bank prompted its collapse and forced finance officials to take emergency actions to shore up the system, Federal Reserve Chair Jerome Powell said on Wednesday.
“We took powerful actions with Treasury and the FDIC, which demonstrate that all depositors’ savings are safe,” Powell told a news conference following the central bank’s decision to raise interest rates for a ninth straight meeting despite what he acknowledged were substantial questions about the banking turmoil’s impact on the economy.
“The banking system is safe. Deposit flows in the banking system have stabilized over the last week,” Powell said.
The issue of the safety of trillions of dollars in the banking system was a key focus of questions put to Powell after the Federal Open Market Committee raised its benchmark overnight lending rate by a quarter percentage point to a range of 4.75-5 percent.
Indeed, Powell opened his press conference with a preamble devoted to an assurance that the banking system is sound and officials stand ready to use “all of our tools as needed” to ensure it remains so.
In the case of Silicon Valley Bank and Signature Bank, which also failed, Fed officials, alongside those from the Federal Deposit Insurance Corp and Treasury Secretary Janet Yellen, invoked emergency powers to keep all deposits at both banks whole, even those that exceeded the FDIC’s $250,000-per-depositor insurance limit.
“These actions demonstrate that all depositors’ savings in the banking system are safe,” Powell said.
That said, when later asked if that meant that “de facto deposit insurance covers all savings,” Powell said: “I’m not saying anything more than I’m saying.”
“So what I’m saying is you’ve seen that we have the tools to protect depositors when there’s a threat of serious harm to the economy,” Powell said. “Or to the financial system. And we’re prepared to use those tools. And I think depositors should assume that their deposits are safe and secure.”
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