Dive Brief:

• The federal government could backstop more deposits in an effort to stem contagion in the banking industry, Treasury Secretary Janet Yellen said in a speech Tuesday to the American Bankers Association.
• Deposits at the nation’s small and midsize institutions could receive the same protections federal regulators last week granted to funds held at Silicon Valley Bank and Signature Bank, the two largest banks to fail since the 2008 financial crisis, Yellen said.
• The government’s response to the recent bank failures demonstrates a "resolute commitment to take the necessary steps to ensure that depositors’ savings and the banking system remain safe,” Yellen said.

Dive Insight:

Yellen said regulators’ actions amid a slew of bank failures were not aimed at 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.”

Yellen’s remarks come as the federal government has taken extraordinary steps to strengthen public confidence in the financial sector in the wake of a bank run that saw depositors try to withdraw more than $42 billion from SVB before regulators shuttered the Santa Clara, California-based bank.

Regulators last week announced that all deposits held at SVB, as well those at New York City-based Signature, which experienced a similar run, would be protected.

“I believe that our actions reduced the risk of further bank failures that would have imposed losses on the Deposit Insurance Fund, which is paid for through fees on insured banks,” she said.

In response to the crisis, the Federal Reserve also announced the launch of a $25 billion emergency lending facility, aimed at providing the nation’s lenders with liquidity to meet depositor withdrawals. The regulator also expanded its discount window in the aftermath of last week’s bank failures. 

“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.”

Meanwhile, Treasury officials are exploring whether federal regulators have the authority to temporarily insure deposits greater than $250,000 on most accounts without formal consent from Congress, according to Bloomberg, which cited people familiar with the matter.

Treasury officials are discussing using the Treasury’s authority to take emergency action and lean on the Exchange Stabilization Fund to expand FDIC insurance, sources told the wire service.

During her speech, Yellen said she is committed to ensuring the nation’s smaller institutions remain strong.

“Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions,” she said.