Yellen, caught between the markets and the US Congress, tweaks the message

Janet Yellen is the face of the US government on the issue and her public comments have sent the markets on a roller coaster.

For the fourth time in a week, US Treasury Secretary Janet Yellen took a microphone to assure Americans that the US banking system is safe, each time with a subtle change in message.

But the bankers and Wall Street never listened to what they fervently wanted: that the government would guarantee $19.2 trillion in US bank deposits until the banking crisis that erupted two weeks ago abated.

Yellen is the face of the US government on the issue and her public comments They have sent the markets on a roller coaster.

Becoming more explicit each time she has spoken, Yellen has repeatedly said the US will protect deposits, but has refrained from offering a blanket guarantee, which would insure account balances of any size, including those over the limit. current $250,000.

His comments on Thursday indicated more clearly than before that additional guarantees for uninsured deposits would come in the form of bailouts for depositors of failed individual banks where problems threaten to spark runs on other banks.

He told US lawmakers that banking regulators and the Treasury were prepared to provide comprehensive deposit guarantees at other banks, as they did in the failed Silicon Valley Bank (SVB) and signature bank.

“These are tools that we could use again for an institution of any size if we judged that their failure would pose a risk of contagion,” he told a US House of Representatives subcommittee on Appropriations hearing.

The comments helped boost broad stock indices, but shares of regional banks, including Bank of the First Republic in trouble kept sliding.

Yellen had told a Senate subcommittee on Wednesday that she was not considering a measure to bypass Congress and provide “blanket insurance” on all US bank deposits.

the influence of Congress

This is a step the government and regulators took unilaterally in the 2008 global financial crisis, but US President Joe Biden’s administration would now have to win congressional approval under 2010 reforms.

Hardline Republicans oppose any increase in the Federal Deposit Insurance Corporation’s current $250,000 limit, so Yellen is unlikely to be able to quickly organize such support, even if the crisis worsens.

Banks and markets have sometimes found Yellen’s comments disturbing. On March 16, he told a Senate hearing that banks had to pose 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, he said actions similar to the SVB guarantee “could be justified if smaller institutions suffer runs on deposits,” reassuring those institutions.

Yellen’s reluctance to back a universal endorsement has drawn criticism from investors, including hedge fund manager Bill Ackman. They argue that a universal guarantee is needed to prevent depositors of small and medium-sized banks from fleeing for perceived safety at big banks deemed “too big to fail.”