Yahoo Finance Live anchors Julie Hyman and Brad Smith discuss Sec. Janet Yellen’s commentary on the banking crisis.
Video Transcript
JULIE HYMAN: Well, in prepared remarks, Treasury Secretary Yellen has said the government is willing to backstop more deposits if smaller banks start to flounder. She defended the Treasury's intervention earlier this month in the wake of Silicon Valley Bank's collapse. She will make her full comments on these topics due at 10:00 AM, Brad.
And, you know, kind of came out again. There is this coordinated effort, seemingly, by regulators-- Treasury, FDIC, Federal Reserve. The message being we got you.
BRAD SMITH: Right.
JULIE HYMAN: The market has believed that in fits and starts, but it seems to believe it today.
BRAD SMITH: Yeah, yeah. We got y'all, as Issa Rae would say in "Insecure" on HBO. You know, at the end of the day, one of the things that they did put within the statement, or at least Treasury Secretary Yellen did. "Our intervention was necessary to protect the broader US banking system. Similar actions could be warranted if smaller institutions as well suffer deposit runs that pose a risk of contagion."
And when you think about what a deposit run looks like, look no further than what we saw with First Republic. They had $70 billion worth of deposits pulled from the bank, 40% of the total deposits. That's according to the "Wall Street Journal" reporting that had come out. And Yellen, for what they added within the statement from the Treasury side, "I believe that our actions reduced the risk of further bank failures here," which is something-- it will be interesting to see if the Fed addresses that within their own commentary, their discussion, and within the ultimate decision once we get some of the commentary around that.
JULIE HYMAN: Yeah, so that's sort of that portion of it. Then you have the FDIC reportedly considering raising that cap on insurance, deposit insurance above $250,000. It is a move that some in Congress, particularly Republicans in Congress, oppose, so we'll see if it does end up gaining any traction.
I mean, right now you effectively have an implicit guarantee because of what happened with Silicon Valley Bank. But the question is, will the FDIC make it explicit? Will they extend it to other depositors as well?
And I guess it depends on-- you know, we keep saying if it's necessary, if this contagion grows. We haven't necessarily seen evidence of a deposit flight that is widespread.
BRAD SMITH: Right.
JULIE HYMAN: But it's also difficult to tell what's going on inside some of these banks.
BRAD SMITH: Yeah, it's extremely difficult. And I think for some of the banks that have kind of formed this consortium to invest $30 billion into First Republic, they're also trying to put their best minds forward to say, OK, here are some of the solutions that we can help craft to get you to the other side of this as well. JPMorgan one of those, of course, that has been involved within this conversation. So that particularly is going to be of interest to see where they move forward in those discussions.
JULIE HYMAN: Yeah, and just once again to put a fine point on what we're seeing in First Republic, which I think is a pretty extraordinary part of all of this with reportedly Jamie Dimon of JPMorgan once again spearheading the push to help the bank. And seeing it surge this morning. PacWest and Western Alliance extending some of their gains from yesterday.
And I guess the question becomes, is it just deposits or does it become something more in terms of aid from the other banks? I don't think we have the answer to that question yet. And again, will it even be necessary? We don't know yet. But there's a lot being thrown at these issues.
BRAD SMITH: Absolutely.
