Regulators can intervene again, if necessary, to guarantee bank deposits and thus prevent contagion. Nothing to fear, 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. Fed governors began the two-day meeting that concludes today with one of the most uncertain outcomes after a year in which they have adopted eight consecutive interest rate hikes.
"The steps we are taking are not focused on helping specific banks or a class of banks," Yellen said in a speech to the American Bankers Association. He was referring to the takeover of Silicon Valley Banck (SVB) and Signature, and the problems that arose in medium-sized banks such as First Republic Bank, rescued with $30 billion provided by the country's 11 largest financial corporations.
“Our intervention was necessary to protect the banking system of the United States in general. And similar actions could be justified if small institutions suffer from a flight of deposits that put them at risk of contagion", he insisted.
In the round of answers, Yellen indicated that it is being studied, as the regulators said, to give guarantees to all deposits beyond the $250,000 level set in the plan established with the two banks involved. He pointed out that they are preparing a similar measure in case other institutions need it.
"We have time to evaluate some adjustments", he emphasized. "The situation is stabilized", he reiterated after the recent turbulence, which many professionals in the banking sector attribute in part to the impact of the increase in interest rates decreed by the Federal Reserve. Rates have reached the level of 4.50%-4.75%, which means the most significant hike in several decades.
The decision adopted this Wednesday by the central bank of the United States will lead to an answer to this suspicion. At the beginning of the month, everything indicated that the Fed would agree to a half-point increase today, given the entrenchment of inflation at a very high level and the resistance of the labor market.
The problems in the banking system of the last two weeks represent a change in these perspectives, according to experts. Most point out that the Fed will raise rates for the ninth time, just as it has done in every meeting it has had since March 2022, although it will remain by 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 is predicted that the Fed will leave things as they are given the stress on the banks.
