There is a need to address “weaknesses” in the banking system that last year’s failures of Silicon Valley Bank and Signature Bank exposed, Treasury Secretary Janet Yellen said yesterday.
During a speech at the U.S. Treasury Market Conference in New York City, Yellen said the strong financial system in the U.S. was crucial to the nation’s historic economic recovery, “with banks continuing to lend and provide other critical services throughout the COVID-19 pandemic.” However, the SVB and Signature Bank failures demonstrated the need for greater supervisory attention on banks “with less stable deposits,” she said. Yellen also said the U.S. needs regulations that account for unrealized losses on securities.
“We also need changes so that banks are better prepared for liquidity stress, such as making sure that they have diverse sources of contingency funding and especially that they have the capacity to borrow at the discount window and periodically test this capacity,” Yellen said. “This includes considering establishing collateral pre-positioning requirements to facilitate borrowing from the [Federal Reserve’s] discount window, improving the discount window’s operational capacity, and enhancing coordination between the discount window and the Federal Home Loan Banks.” [Federal Reserve Vice Chairman for Supervision Michael Barr also expressed support for the proposals during a separate speech the same day.]
Yellen also urged support for “regulators’ efforts to strengthen long-term debt requirements for regional banks so that they can be more effectively resolved if they do fail.”
