According to the US Treasury Secretary, Janet Yellen, the recent turmoil in the world’s financial system can be attributed to “contagious bank runs”.
Yellen clarified that this situation is different from the solvency crisis of 2008, stating that the US banking system remains sound despite coming under some pressure.
Yellen also assured that the US Federal Reserve is ready to intervene in the event of a smaller bank collapse and will remain vigilant in the upcoming days and weeks. Her comments followed a speech to the American Bankers Association.
Yellen noted that the intervention of the US Federal Reserve was necessary to protect the broader US banking system, as seen with the recent collapses of Silicon Valley Bank and Signature Bank.
She also acknowledged that similar actions could be warranted if smaller institutions face deposit runs that could lead to contagion.
To prevent a potentially disastrous impact on the US financial system, US Treasury Secretary Janet Yellen has urged Congress to raise the borrowing limit, calling it a “basic responsibility Congress has to the American people.”
The House of Representatives Republicans have been blocking a bill to increase the US debt ceiling, which reached its borrowing limit of $31.4tn in January.
Yellen expressed concern that Congress might wait until the last minute to act, citing the late agreement in 2011 that resulted in the downgrading of the US Government’s credit rating and increased borrowing costs. Yellen stated that the failure to raise the debt limit would be “utterly catastrophic.”
Meanwhile, US regulators have confirmed that depositors at the collapsed Silicon Valley Bank and Signature Bank, including those with uninsured funds over $250,000, will be protected by federal deposit insurance.
Global bank stocks have surged following the cooling of concerns about the takeover of Credit Suisse, with banking stocks across the FTSE 350 rising by 4.3%. The blue-chip FTSE 100 index climbed 2% driven by the surge in banking stocks, with NatWest, Barclays, and Lloyds all experiencing significant jumps.
