US Yellen "Additional Deposit Guarantees if Needed"... First Republic Stock Price Soars (Summary)

Janet Yellen, U.S. Secretary of the Treasury, stated on the 21st (local time) that the U.S. banking system is stabilizing following the authorities' actions in response to the Silicon Valley Bank (SVB) and Signature Bank bankruptcy incidents, adding, "if necessary, the government will guarantee more deposits."

[Image source=EPA Yonhap News]

Secretary Yellen attended the American Bankers Association conference that day and said the authorities' response immediately after the SVB bankruptcy was swift and appropriate. He said, "The measures we took were not focused on supporting specific banks. We intervened to protect the broader banking system," emphasizing, "If small banks experience deposit withdrawals with contagion risk, similar (additional) measures may be taken."

Earlier, the Treasury Department announced that it would guarantee full payment of uninsured deposits, which were not covered by deposit insurance, following the closures of SVB and Signature Bank. However, despite the intervention by U.S. authorities, uncertainty persisted about how far the systemic crisis might spread, and some in the market continued to argue that additional measures were necessary. In this context, Secretary Yellen directly confirmed that if the banking crisis escalates, deposits exceeding the deposit insurance limit (USD 250,000 per person) at all banks could be protected.

However, Secretary Yellen did not specify what particular measures could be taken that day. Earlier, Bloomberg News reported, citing sources, that authorities were considering temporarily guaranteeing all deposits by expanding the coverage to all deposits. Additional reports also emerged that large bank CEOs, including Jamie Dimon of JPMorgan Chase, would hold a two-day meeting starting that day in Washington, D.C., to support First Republic Bank, which has been engulfed in crisis rumors following the SVB incident.

The Treasury Department currently judges that measures such as guaranteeing all deposits are not necessary. That day, Secretary Yellen reiterated, "The situation is stabilizing," and "The U.S. banking system is sound." He said the new fund (BTFP) established by the Federal Reserve to support bank liquidity is functioning within the banking system, and total deposit withdrawals from regional banks are also stabilizing. Furthermore, these measures "strengthen public confidence in the U.S. banking system and protect the U.S. economy," he evaluated.

Secretary Yellen also reiterated that the current situation differs from the 2008 global financial crisis. He emphasized, "Our financial system is much stronger than it was 15 years ago."

The market was relieved by Secretary Yellen's remarks. Major indices on the New York Stock Exchange closed higher that day, buoyed by a rally in bank stocks. The stock price of First Republic, which had plunged double digits the previous day, jumped nearly 30%. The SPDR S&P Regional Banking ETF also rose about 6%. As concerns over banking risks eased, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's 'fear gauge,' fell more than 11% compared to the previous session.