Yellen Says U.S. Will Intervene if Needed to Protect Smaller Banks

In the U.S., First Republic Bank continues its battle to restore confidence after a plunge in its share price.

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has led plans to have a group of big banks convert some or all of the $30 billion they deposited last week with First Republic into a capital infusion, according to people familiar with the matter.

More Yellen Remarks

On Tuesday, Yellen defended the recent government measures as a swift and necessary response.

“The federal government delivered just that: decisive and forceful actions to strengthen public confidence in the U.S. banking system and protect the American economy,” she said.

The steps, she said, “reduced the risk of further bank failures that would have imposed losses on the Deposit Insurance Fund.”

Yellen made a point of contrasting the recent bank failures with the wider crisis that threatened many large institutions and credit markets in 2008.

“Recent developments are very different than those of the global financial crisis,” she said. “Back then, many financial institutions came under stress due to their holdings of subprime assets. We do not see that situation in the banking system today.”

She added that the U.S. financial system was much stronger than in 2008 due in part to post-crisis reforms that enforced higher capital requirements for U.S. lenders.

Yellen also said the government hoped to preserve the role of small and mid-sized lenders within the larger financial system.

“Large banks play an important role in our economy, but so do small- and mid-sized banks,” she said. “Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions.”

(Photo: House Ways and Means Committee)