Treasury Secretary Yellen says the government could backstop more deposits if necessary

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.

“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 banks not to be able to meet deposit requirements.

In response, the Treasury, Fed and FDIC 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.

“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.”

An exchange-traded fund that tracks mid-size bank stocks, the SPDR Regional Banking ETF, rose 3.3% in premarket trading. The fund has tumbled 31% over the past month.

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