SVB collapse: Yellen says US could backstop small banks if problems grow

Treasury Secretary Janet Yellen said that the U.S. government could provide support to small banks in the event of any escalation of the fallout from Silicon Valley Bank’s recent collapse.

Yellen made these remarks during a pre-recorded appearance at a conference hosted by the American Bankers Association in Washington, D.C. Her aim was to reinstate faith in the banking system, which has been shaken because of the SVB collapse. Some have criticized federal officials for allegedly rescuing major banks by disregarding smaller community banks.

Yellen acknowledged the criticism, stating: “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. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”

Following SVB and Signature Bank’s failure, the federal government stepped in to pay all funds above the $250,000 limit of the Federal Deposit Insurance Corporation to depositors who have funds in these two banks, effectively reassuring the market to an extent.

However, First Republic Bank and other regional banks have faced scrutiny from the press and public alike, prompting some to call for the government to be responsible for a broader range of deposits or even all bank deposits to prevent a possible financial crisis.

Sen. Elizabeth Warren (D-MA) stated last week that lifting the FDIC insurance cap is a wise move. She claims that these banks are underregulated, and if the government lifts the cap, relying even more on regulators to do their jobs will become necessary.   

Despite some lawmakers wanting the government to do more to intervene, others on the right have labeled the Biden administration’s actions a bailout. However, the administration has said that it wasn’t because the funds came from bank fees rather than direct taxpayer money, and the bank equity was wiped out.

SVB’s parent company filed for bankruptcy on Friday, with the firm auctioned off this week in two separate pieces.

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