WASHINGTON, March 23 (Reuters) – For the fourth time in a week, U.S. Treasury Secretary Janet Yellen took to the microphone on Thursday to reassure Americans that the U.S. banking system is safe, each time with a subtle message.
But bankers and Wall Street never heard what they desperately wanted: That the government would guarantee all $1[ads1]9.2 trillion in American bank deposits until the banking crisis that erupted two weeks ago subsides.
Yellen is the face of the US government on the issue, and her public comments have sent markets on a roller-coaster ride.
Yellen has become more explicit each time she has spoken, repeatedly saying the U.S. will protect deposits but stopping short of a blanket guarantee, which would protect account balances of any size, including those above the current $250,000 limit.
Her comments on Thursday indicated more clearly than previously that additional guarantees for uninsured deposits would come in the form of bailouts for depositors at individual failing banks where problems threaten to trigger runs on other banks.
She told U.S. lawmakers that banking regulators and the Treasury Department were prepared to provide sweeping deposit guarantees at other banks, as they did at failed Silicon Valley Bank and Signature Bank ( SBNY.O ).
“These are tools we can use again, for an institution of any size, if we judge that its failure would pose a contagion risk,” she told a US House of Representatives Appropriations hearing.
The comments helped to lift broad stock indices. But regional bank stocks ( .KRX ) including shares of struggling First Republic Bank ( FRC.N ) continued to slide.
Yellen told a Senate subcommittee on Wednesday that she is not considering a move to bypass Congress and provide “coverage insurance” on all US bank deposits.
THE LUCK OF THE CONGRESS
It’s a step the government and regulators took unilaterally in the 2008 global financial crisis, but the Biden administration now had to get congressional approval under 2010 reforms.
Hardline Republicans oppose any increase in the current $250,000 limit at the Federal Deposit Insurance Corp, making it unlikely that Yellen could quickly arrange such a backstop even if the crisis worsens.
Banks and markets have at times found Yellen’s comments disturbing. On March 16, she told a Senate hearing that banks would have to pose a systemic risk to win a deposit guarantee, a comment that was interpreted as leaving small community banks to fend for themselves.
But at a banking conference on Tuesday, she said that similar actions like the SVB guarantee “may be justified if smaller institutions are suffering from a run on deposits,” and reassured those institutions.
Yellen’s reluctance to support a universal backstop has drawn criticism from investors, including hedge fund manager Bill Ackman. They argue that a universal guarantee is necessary to prevent depositors in small and medium-sized banks from fleeing for the safety of large banks deemed “too big to fail.”
Reporting by Heather Timmons and David Lawder; Written by Heather Timmons; Editing by Paul Simao and Cynthia Osterman
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