Yellen: Government Willing to Back Deposits at Small and Mid-Sized Banks

If you keep your money in a small or mid-sized bank, the government made clear it’s willing to bail you out if your institution fails.

Seeking to reassure depositors that their money was safe in the nation’s banks no matter the size, Treasury Secretary Janet Yellen said Tuesday morning that last week’s bailouts of uninsured depositors at the failed Silicon Valley and Signature banks would be repeated at smaller institutions if needed.

“Our intervention was necessary to protect the broader U.S. banking system,” Yellen said in a speech at the American Bankers’ Association summit in Washington. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”

Yellen’s comments made clear that the government is willing to extend the “too big to fail” logic that implicitly protects depositors at large banks to small regional and community banks put at risk of bank runs by the collapse of Silicon Valley Bank. Yellen said the goal was to prevent contagion—a situation in which depositors might rush to pull their money from banks similar to SVB. 

A case in point: First Republic Bank (FRC), a regional bank based in San Francisco is struggling after customers took out about half of the bank’s total deposits in the wake of the SVB collapse. 

“We stand behind the banking system,” Yellen said in a Q&A session after her speech. “The public should have confidence in our banking system, and it's our intention to remain vigilant in the days and weeks to come.”