Treasury Secretary Janet Yellen said the situation around US banks has “stabilized” although regulators stand ready to repeat the extraordinary measures taken in March to stem the rush of depositors.
“I’ve read that outflows from small and medium-sized banks are slowing down and things are stabilizing, but we’re monitoring this situation very closely,” Yellen told reporters in New Haven, Connecticut, on Monday.
She spoke days after a Federal Reserve report showed deposits at small banks rose in the latest weekly data.
The KBW bank stock index also rose last week after three weeks of declines. Through “forceful action” and reassurances, US officials have shown “that we stand ready to take similar action again if banks experience contagious runs,” Yellen said, referring to the rescue of uninsured depositors at Silicon Valley Bank and of Signature Bank in the last month.
The Federal Reserve also created an emergency lending facility last month to provide liquidity to banks facing outflows. This is intended to strengthen the Fed’s role “as a lender of last resort,” said Yellen, a former Fed chair. “We are not willing to allow contagious runs to develop,” she said.
Meanwhile, Yellen has fought back criticism that the Financial Stability Oversight Council, the body she chairs tasked with identifying systemic financial threats, failed to identify in advance the forces behind a much larger onslaught bank deposits would have come close.
Some Republicans on Capitol Hill have said the FSOC overlooked the threat of rapidly rising interest rates because it focused too much on climate-related risks to financial stability.
“We have focused on a range of issues, including financial risks, and have not focused exclusively on climate risks,” she said.
“The interest rate risk was identified in our annual report.” The recent turmoil, she said, was confined to “a few banks” that have been unusually hit by runs due to their reliance on uninsured depositors.
“I don’t think there is a fundamental problem with the banking system,” she said. “We need to decide what regulatory and regulatory changes need to be made, which this episode may have highlighted. But we don’t have a weak banking system.”
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