Finance minister ready to take 'additional measures' to protect bank deposits

Finance minister ready to take 'additional measures' to protect bank deposits

Treasury Secretary Janet Yellen suggested her department might be ready to further support bank deposits if needed, just a day after she appeared to rule out the possibility.

Her comments were followed by brief fluctuations in bank stocks, which then continued their daily downward trend.

Are deposits secured or not?

In herprepared testimonyBefore the House Appropriations Subcommittee on Wednesday, Yellen reiteratedCommentsthe previous day explained that the government's recent actions were to ensure the safety of American deposits.

However, she removed a key line from Wednesday's statement in which she asserted that "the U.S. banking system is safe and sound" and now inserted a statement that the Treasury Department "would be prepared to take additional action if warranted."

"As I said, we used important tools to act quickly and prevent contagion," Yellen said, "and those are tools we could use again. The strong measures we have taken ensure that Americans' deposits are safe."

The comments appear to contradict Yellen's statements Wednesday to another Senate subcommittee that the Treasury Department would not consider a "blanket" guarantee on bank deposits in the near term without congressional approval, which would lead to a subsequent plunge in bank stocks.

These earlier comments also contradict herclaimas of Tuesday that the Treasury Department would be willing to secure deposits at smaller U.S. banks if warranted. Their repeated flip-flopping on the issue has voices within the crypto community calling them a bluff, suggesting the government is either disingenuous or indecisive regarding a potential banking crisis.

Many of the Fed and Treasury actions of late appear to be more “boosted” than normal.

Just feel it through, record stuff, see what breaks, respond if necessary, repeat. https://t.co/qTKRruYII3

– Lyn Alden (@LynAldenContact) March 23, 2023

Hold everything back

After the Treasury Department objected to system-wide deposit insurance on Wednesday, billionaire Bill Ackman recommendedthat deposit outflows would likely accelerate quickly. That outflow, he said, would be accelerated by the unattractiveness of bank deposits as the Fed raises its key interest rate to 5% on the same day.

“Temporary system-wide deposit protection is needed to stop the bleeding,” he added. “The longer the uncertainty lasts, the more permanent the damage will be for the smaller banks and the more difficult it will be to get their customers back.”

Yellen has previously claimed that the Fed would only be willing to insure deposits at banks deemed to pose a “systemic risk” to the financial system. have critics arguedthat such a promise would ensure that there is no incentive for bank customers to keep their deposits with smaller banks, thereby creating a two-tier system.

First Republic Bank shares fell another 6% on Thursday. Meanwhile, Deutsche Bank shares fell 3% as credit default swaps, which hedge against the bank's insolvency, rose to highs not seen since early 2020.

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