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US Treasury promises support to smaller banks facing risks

US Treasury promises support to smaller banks facing risks

Posted March. 23, 2023 07:51,   

Updated March. 23, 2023 07:51


U.S. Treasury Secretary Janet Yellen (photo) said that the government could once again rescue depositors if small lenders suffer bank runs, suggesting that the government would provide a full guarantee of deposits for smaller banks. The government and Wall Street are working to restore confidence in banks as the risk of U.S. bank crisis impacting commercial real estate, which has weakened against high-interest rates.

In a speech at the American Bankers Association in Washington, D.C. on Tuesday (local time), Secretary Yellen stressed that the government stepped in to protect all depositors when the Silicon Valley Bank and the Signature Bank failed. “Similar measures can be guaranteed if smaller lenders face the risk of deposit runs,” she said. Such actions reflect Washington’s decision to provide full guarantees of deposits of smaller banks, fearing that further bankruptcy of these banks, including First Republic Bank, would spread bank crisis.

Bloomberg reported on Monday, citing a government source, that the U.S. Treasury is considering providing a guarantee of deposits exceeding 250,000 dollars without Congress approval.

The U.S. government is wary of a bank run crisis spreading to the real economy. Around 4,800 small banks hold commercial real estate loans of 2.3 trillion dollars. If these banks face problems, this may escalate into a breakdown of the real estate market, which is already suffering from high-interest rates.

According to Goldman Sachs on Tuesday, recent confusion in the bank sector, which handles around half of commercial real estate loans, is fueling concerns on the real estate market.

Hyoun-Soo Kim kimhs@donga.com