She told U.S. lawmakers that bank regulators and the Treasury were prepared to make comprehensive deposit guarantees at other banks as they did at failed Silicon Valley Bank and Signature Bank . "These are tools we could use again, for an institution of any size, if we judge that its failure would pose a contagion risk," she told a U.S. House of Representatives Appropriations subcommittee hearing.
The comments helped lift broad stock indexes. But regional bank shares including those of struggling First Republic Bank continued to slide. Yellen on Wednesday told a Senate subcommittee that she was not considering a move to circumvent Congress and grant "blanket insurance" on all U.S. bank deposits.
CONGRESS' CLOUT That's a step that the government and regulators took unilaterally in the 2008 global financial crisis, but the Biden administration would now have to get approval from Congress under 2010 reforms.
Hardline Republicans oppose any increase in the current $250,000 Federal Deposit Insurance Corp limit, making it unlikely that Yellen could hastily arrange such a backstop even if the crisis worsens. Banks and markets have found Yellen's comments unsettling at times. On March 16, she told a told a Senate hearing that banks had to pose a systemic risk to win a deposit guarantee, a comment interpreted as leaving small community banks to fend for themselves. But at a bank conference on Tuesday, she said that similar actions to the SVB guarantee "could be warranted if smaller institutions suffer deposit runs," reassuring those institutions.
Yellen's reluctance to endorse 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 at small and mid-size banks from fleeing for perceived safety at large banks viewed as "too big to fail." (Reporting by Heather Timmons and David Lawder; Writing by Heather Timmons; Editing by Paul Simao and Cynthia Osterman)
