US officials have jumped in to contain the turmoil this month by protecting depositors of tech-focused SVBs, but US Treasury Secretary Janet Yellen declined to extend that protection more broadly. Yellen told lawmakers on Wednesday that she had not considered or discussed “full insurance” for deposits without congressional approval.
His comments previously pressured shares of beleaguered First Republic Bank FRC.N, which lost most of its market value since the collapse of SVB and Signature Bank and which has been talking to peers and investment firms about possible deals.
Yellen’s comments came as Powell sought to reassure investors about the soundness of the banking system, saying that SVB’s management had “failed miserably”, but that the bank’s collapse signaled wider weaknesses in the sector. Did not give
“These are not vulnerabilities that are sweeping through the banking system,” the Fed chair said, adding that the Credit Suisse acquisition appears to be a positive outcome.
The Fed’s relentless rate hikes to rein in inflation are among the factors blamed for the biggest banking sector meltdown since the 2008 financial crisis.
“The Fed is now living on a hope and prayer that they haven’t caused irreparable damage to the banking system,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin. “The Fed is probably thinking that financial stressors are substituting for future rate hikes.”