Yellen says Treasury is ready to take ‘additional actions if warranted’ to stabilize banks

WASHINGTON — Treasury Secretary Janet Yellen said Thursday that the federal emergency actions to back up Silicon Valley Bank and Signature Bank customers could be deployed again in the future if necessary.

“We have used important tools to act quickly to prevent contagion. And they are tools we could use again,” Yellen said in written testimony before a House Appropriations subcommittee.

“The strong actions we have taken ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted,” she added.

Yellen’s testimony came amid growing market concerns over small and mid-sized regional banks that have experienced a rush of withdrawals in the wake of the SVB collapse, and specifically whether the federal government is prepared to backstop these banks in the event of a run.

In Washington, Yellen has drawn criticism from lawmakers who argue that the decision to insure deposits at SVB and Signature amounted to a reward for big banks that took excessive risks.

Meanwhile, lawmakers say, smaller institutions are being forced to confront a spike in deposit outflows — triggered by public fears about the big banks — without any special help.

Regional bank stocks fell Wednesday in part because of comments Yellen made at a Senate hearing last week, in which she said Treasury is not considering any plans to insure all U.S. bank deposits without congressional approval.

Uninsured deposits, she told lawmakers last week, would only be covered in the event that a “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

Thursday’s remarks appeared to deliberately leave open the prospect that, while universal deposit insurance cannot be enacted without a bill from Congress, Treasury is still ready to take future emergency actions to prevent broader contagion and preserve large-scale financial stability.

Congress has broad authority over the FDIC insurance limit, currently set at $250,000 as part of the Dodd-Frank financial reforms. Congress can also temporarily suspend the limit, like it did in 2020 as part of the government’s response to Covid-19.

This time around, only a handful of Democrats have openly suggested Congress consider raising the limit across all deposits. An influential bloc of House Republicans, meanwhile, has already come out against any hike. This makes it difficult to envision how a bill to raise the limit would pass the GOP-controlled House.