Regulators can intervene again if necessary to guarantee bank deposits and avoid contagion. Nothing scary, the system is solid.
This message of confidence was offered yesterday by Janet Yellen, Secretary of the Treasury, under the watchful eye of the Federal Reserve. The Fed governors began their two-day meeting that ends today with one of the most uncertain results after a year in which they adopted eight consecutive interest rate hikes.
“The steps we took were not focused on helping specific banks or a class of banks,” Yellen said in a speech at the American Bankers Association. He was referring to the takeover of Silicon Valley Bank (SVB) and Signature, and the problems that arose in medium-sized banks such as First Republic Bank, rescued with 30,000 million dollars contributed by the eleven largest financial corporations in the country.
“Our intervention was necessary to protect the American banking system in general. And similar actions could be justified if small institutions suffer a flight of deposits that put contagion at risk, ”he insisted.
In the turn of responses, Yellen indicated that they are studying, as the regulators said, giving guarantees to all deposits beyond the level of $250,000 set in the plan established with the two intervened banks. He indicated that they prepare something similar if other institutions need it.
He had previously talked about the federal government protecting uninsured bank deposits.
"We have time to evaluate some adjustments," he stressed. "The situation is stabilized," he reiterated after the recent turmoil that many in the banking sector attribute in part to the impact of the interest rate increase decreed by the Federal Reserve. The rates have reached the level of 4.50%-4.75%, in what means the most important rise in several decades.
The decision adopted this Wednesday by the US central bank will entail a response to that suspicion. At the beginning of the month, all indications were that the Fed would agree to a half-point hike today, in the face of entrenchment of inflation at a very high level and the resistance of the labor market.
The problems in the banking system in the last two weeks mean a change in these perspectives, according to experts. Most point out that the Fed will raise rates for the ninth time, as it has done in all the meetings it has held since March 2022, although it will remain at 0.25 points.
But there is also a sector that believes that the Federal Reserve will agree to a pause in the escalation, waiting to see how the banking situation evolves. Among others, this is how a Goldman Sachs report defends it, in which it bets that the Fed will leave things as they are given the stress of the banks.
