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Yellen, caught between markets and US Congress, tweaks message | Business and Economy News

Janet Yellen is the face of the US government on this issue and her public statements have sent the markets on a rollercoaster ride.

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

But the bankers and Wall Street never heard what they fervently wanted: That the government would guarantee all $19.2 trillion in US bank deposits until the banking crisis that erupted two weeks ago calms down.

Yellen is the face of the US government on this issue and her public comments have sent the markets on a rollercoaster ride.

Yellen becomes more explicit each time she speaks and has repeatedly said the US will protect deposits, but has stalled on a blanket guarantee that would protect account balances of any size, including those over the current US$250,000 limit -dollars lie.

Her comments on Thursday suggested more clearly than before that further guarantees for uninsured deposits would come in the form of bailouts for depositors in individual failing banks if problems prompted runs on other banks.

She told US lawmakers that the banking regulator and Treasury Department are prepared to provide comprehensive deposit insurance at other banks, as they did when the bank went bust Silicon Valley Bank (SVB) and signature bank.

“These are tools that we could use again for an institution of any size if we felt their failure would pose a risk of contagion,” she said at a hearing of the U.S. House Appropriations Subcommittee.

The comments helped lift broad stock indices, but also regional bank stocks, including those of struggling First Republic Bank kept sliding.

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

The influence of Congress

This is a move government and regulators unilaterally took during the 2008 global financial crisis, but US President Joe Biden’s administration would now need to seek congressional approval as part of the 2010 reforms.

Hardline Republicans oppose any increase to the Federal Deposit Insurance Corp’s current limit of $250,000, making it unlikely Yellen could hastily arrange such a backstop even if the crisis worsens.

Banks and markets have at times found Yellen’s comments unsettling. On March 16, she said at a Senate hearing that banks must pose systemic risk to qualify for deposit insurance, a comment interpreted as leaving small community banks to fend for themselves.

But at a banking conference on Tuesday, she said similar measures to the SVB guarantee “might be warranted if smaller institutions suffer deposit storms,” ​​reassuring those institutions.

Yellen’s reluctance to support a universal backstop has drawn criticism from investors, including hedge fund manager Bill Ackman. They argue that a universal guarantee is needed to prevent depositors in small and mid-sized banks from fleeing to the supposed safety of big banks, which are considered too big to fail.



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