Yellen promise on community bank deposits sparks relief in small-town
America
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[March 23, 2023] By
David Lawder and Douglas Gillison
WASHINGTON (Reuters) -The brewing U.S. banking crisis seems far removed
from the northeastern Vermont town of St. Johnsbury, but local
Passumpsic Bank executive Daniel Kimbell grew concerned when he heard
U.S. Treasury Secretary Janet Yellen's congressional testimony last
week.
Yellen told a U.S. Senate hearing on March 16 that uninsured deposits
would only be guaranteed in banks deemed a contagion threat, raising
fears that banks like Passumpsic, with $900 million in assets, might see
business deposits above the $250,000 insurance limit flee for perceived
safety to far larger institutions.
"A lot of us were kind of offended at what had come out, that the
Treasury was going to guarantee all of the deposits for the larger banks
-- the too-big-to-fails -- and us smaller banks were going to be on our
own," Kimbell told Reuters at an American Bankers Association conference
in Washington.
While big banks have dominated headlines, the country's 4,258 community
banks, which are more risk-averse, account for more than 90% of all
chartered banks.
They held just 11% of the $23.6 trillion in U.S. banking assets at the
end of 2022, but nearly half are chartered in counties with populations
of 50,000 or less, making them a key source of capital for small-town
America and minority urban communities alike.
Yellen, President Joe Biden and the Federal Reserve and Federal Deposit
Insurance Corp boards had invoked "systemic risk exceptions" after the
failures of California's Silicon Valley Bank and New York's Signature
Bank that allowed them to protect uninsured deposits, including those of
wealthy technology executives and cryptocurrency investors.
Yellen on Tuesday shifted her emphasis, vowing to safeguard deposits at
smaller banks and saying that the Treasury and regulators were prepared
to intervene if further deposit runs threaten more banking contagion.
On Wednesday, she clarified that this would not include a swift
government move to grant "blanket insurance" on all U.S. bank deposits
without Congressional approval, but said that depositors in community
banks, just like those in larger institutions, may qualify for systemic
risk protections if those banks' failures could spark contagious bank
runs.
[to top of second column] |
U.S. Treasury Secretary Janet Yellen
takes questions on the Biden administration's plans following the
collapse of three U.S. lenders including Silicon Valley Bank and
Signature Bank, as she testifies before a Senate Finance Committee
hearing on U.S. President Joe Biden's proposed budget request for
fiscal year 2024, on Capitol Hill in Washington, U.S., March 16,
2023. REUTERS/Mary F. Calvert
Her comments marked a shift in emphasis to include community banks
that were not mentioned in her earlier testimony.
"The community banks in this country, we know, are strong and
resilient. And I think banks need to reassure their customers, that
they are strong and resilient, and the government needs to do
exactly the same thing," Yellen said.
Kimbell, who heads wealth management at Passumpsic Bank, said her
reassurances "took the anxiety out of the room" over deposits, which
was shared by banks large and small.
The chairman of the Independent Community Bankers Association said
that member banks have not reported widespread withdrawals in
response to the SVB and Signature failures, partly because the
institutions are closely tied to their local markets.
"The community banks we're talking to just aren't seeing the
negative reaction from our customers," said Derek Williams, CEO of
Century Bank & Trust Co in Milledgeville, Georgia.
Yellen's shift to include community banks "was certainly better, it
was an attempt for her to kind of restate what she was saying and
acknowledging the importance of the community banks," Williams said.
She "gave the impression" that the government would step in to
protect depositors, he added.
Community banks play an important political role. There are often
dozens of such institutions in every congressional district, and the
Biden White House is concerned about further consolidation in
financial services. They were a key pillar in COVID-19 pandemic
programs to keep small businesses afloat and their employees paid
during health lockdowns.
(Reporting by David Lawder and Douglas Gillison; additional
reporting by Pete Schroeder; Editing by Heather Timmons, Jonathan
Oatis and Leslie Adler)
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