Treasury Secretary Janet Yellen said Tuesday the government is ready to provide further guarantees of deposits if the banking crisis worsens.
In remarks prepared for a speech to the American Bankers Association, the former Federal Reserve chair said authorities believe they have taken appropriate actions to stem liquidity problems in the sector, but will do more if needed.
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"The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system," Yellen said. "And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."
The comments come in the wake of several bank failures, most notably Silicon Valley Bank and Signature Bank. Customers worried that liquidity problems caused by duration risk with the banks' holdings could cause similar institutions not to be able to meet deposit requirements.
In response, regulators said they would guarantee all deposits, going beyond the previous $250,000 level for the two banks. Yellen's comments indicate that the authorities are prepared to do the same for other institutions that need it.
A report Monday from Bloomberg indicated that regulators are studying a way to guarantee all deposits. One idea that has been floated has been to offer a tiered pricing system in which depositors would pay extra to guarantee deposits above $250,000.
Following the SVB and Signature collapses, the Treasury, Fed and Federal Deposit Insurance Corp. launched a two-pronged initiative that allowed banks to meet their short-term borrowing needs. One, called the Bank Term Funding Program, provided one-year loans against safe securities at full face value, while the other expanded the Fed's discount window.
Together, the programs helped assure that banks would be able to borrow to meet depositor withdrawals as confidence in smaller banks waned.
"The situation is stabilizing. And the U.S. banking system remains sound," Yellen said. "The Fed facility and discount window lending are working as intended to provide liquidity to the banking system. Aggregate deposit outflows from regional banks have stabilized."
Yellen noted that regulators will be looking at whether stronger regulations will be needed to prevent a similar situation in the future.
The Fed already has launched its own internal probe about the oversight of SVB and Signature and has promised to release the results of that review by May 1.
"There's time to evaluate whether some adjustments are necessary in supervision and regulation to address the root causes of the crisis," Yellen said. "I don't want to speculate at this point on what those adjustments might be. What I'm focused on is stabilizing our system and restoring the confidence of our depositors."
An exchange-traded fund that tracks midsize bank stocks, the SPDR Regional Banking ETF, rose 3.3% in premarket trading. The fund has tumbled 31% over the past month.
One of the more troubled banks in the sector, First Republic, jumped 14.7% the premarket following the Yellen speech and on the heels of news that JPMorgan Chase CEO Jamie Dimon is advising First Republic on options for survival, including a potential capital raise or a sale.
Bank shares broadly have been unstable over the past several weeks.
Though the industry is considered well capitalized, the nature of that capital has presented problems. Many banks have loaded up on longer-duration securities such as Treasurys, mortgage-backed securities and municipal bonds. First Republic in particular has a large share of munis on its balance sheet.
As interest rates have soared over the past year, that has decreased the face value of those bonds. In SVB's case, the bank was forced to sell a large portion of its holdings at a loss to meet depositor demands, spurring a further crisis of confidence. There remain worries over large amounts of unrealized losses on bank balance sheets.
Yellen expressed her commitment to making sure the smaller banks stay strong.
"Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions," she said.
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Treasury Secretary Yellen says the government could backstop more deposits if necessary to stop contagion - CNBC
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