The situation in the banking system is stabilizing, and the U.S. system remains sound in the wake of bank failures last week, the secretary of the Treasury told a bankers’ group Tuesday.
However, she added, there is a need for a reexamination of the nation’s bank regulatory and supervision regimes.
Speaking to a conference of the American Bankers Association in Washington, Treasury Secretary Janet Yellen said the Federal Reserve facility set up to deal with the failures of Silicon Valley Bank and Signature Bank – the Bank Term Funding Program – along with lending via the Fed’s discount window “are working as intended to provide liquidity to the banking system.” She also noted that “aggregate deposit outflows from regional banks have stabilized.”
But Yellen also indicated that investigations of the bank failures are coming – including weighing the effectiveness of current rules.
“In the coming weeks, it will be vital for us to get a full accounting of exactly what happened in these bank failures,” Yellen said. “Regulators have already announced a review into Silicon Valley Bank. We are currently focused on the situation at hand. But we will need to reexamine our current regulatory and supervisory regimes and consider whether they are appropriate for the risks that banks face today. We all share an interest in ensuring that the United States remains the strongest and safest financial system in the world.”
Yellen provided a nod to reforms that were instituted in the wake of the financial crisis of 2008. “While we don’t yet have all the details about the collapse of the two banks, we do know that the recent developments are very different than those of the Global Financial Crisis,” she said. “Back then, many financial institutions came under stress due to their holdings of subprime assets. We do not see that situation in the banking system today. Our financial system is also significantly stronger than it was 15 years ago. This is in large part due to post-crisis reforms that provided stronger capital standards, among other important improvements.”
The Treasury leader defended the actions taken in the wake of the failures of the two banks. She said the problems at SVB and Signature could have had “significant impacts on the broader banking system and the economy.”
“The situation demanded a swift response,” Yellen said. “In the days that followed, the federal government delivered just that: decisive and forceful actions to strengthen public confidence in the U.S. banking system and protect the American economy.”