Yellen Says US Could Back All Deposits at Smaller Banks if Needed to Prevent Contagion

U.S. Treasury Secretary Janet Yellen says the federal government could guarantee all deposits of smaller banks if they “suffer deposit runs that pose the risk of contagion.” The government recently protected all deposits of Silicon Valley Bank and Signature Bank after they failed.

U.S. Government Ready to Guarantee More Deposits if Needed

U.S. Treasury Secretary Janet Yellen said in a speech to the American Bankers Association Tuesday that the government is ready to provide additional deposit guarantees if the banking crisis worsens.

Following the failures of several major banks, including Silicon Valley Bank and Signature Bank, the government stepped in and guaranteed all deposits of the two failed banks beyond the usual $250,000 Federal Deposit Insurance Corporation (FDIC) coverage limit. The former Federal Reserve chair explained:

The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.

“The situation is stabilizing. And the U.S. banking system remains sound,” Yellen insisted.

Nonetheless, Treasury Department staff are reportedly exploring ways to temporarily expand FDIC insurance coverage to all deposits, Bloomberg reported Monday.

Last week, the Mid-Size Bank Coalition of America asked federal regulators to extend FDIC insurance to all deposits for the next two years. “It is imperative we restore confidence among depositors before another bank fails, avoiding panic and a further crisis,” the group said. In addition, U.S. Congressman Blaine Luetkemeyer has urged the government to temporarily insure every bank deposit in the country to prevent runs on smaller banks.

However, Yellen dismissed last week the idea of the government providing guarantees for all deposits in the event of future bank failures.

Do you think the government should guarantee all deposits of every bank? Let us know in the comments section below.

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