Crisis averted, but market gets wrong signals

DURING her testimony on Capitol Hill last week, Treasury Secretary Janet Yellen was asked by Republican Senator Bill Hagerty of Tennessee whether she was contemplating a unilateral government guarantee for all bank deposits, including those above the current US$250,000 limit for federal insured savings.

The Federal Deposit Insurance Corporation (FDIC) insures US$250,000 per depositor, per institution and for each account ownership category.

But after the recent collapse of Silicon Valley Bank (SVB), of Santa Clara, California, the second-largest bank failure in US history, the US Treasury, Federal Reserve and FDIC stepped in and said the government would back SVB’s deposits beyond the federally insured ceiling of US$250,000. They were addressing concerns around the fate of uninsured funds held at the country’s 16th-largest bank – which had US$209 billion in assets and more than US$175 billion in deposits.