-: Since the first signs of stress in the banking system
the administration official
leading the government's response
has been Treasury Secretary Janet Yellen.
It's not the first time Secretary Yellen has been asked
to make tough decisions in support of the US economy.
Before becoming the Nation's 78th Treasury Secretary
she served as chair of the Federal Reserve Board.
She holds the distinction
of being the first woman to hold the top jobs
at both the Fed and the Treasury Department.
We're incredibly pleased she could take time
out of her busy schedule to join us today.
Secretary Yellen will deliver some keynote remarks,
and then I will join her for a brief conversation.
Please give a warm ABA welcome
to Treasury Secretary Janet Yellen.
(audience applauding) (upbeat instrumental music)
(audience applauding) -: Thank you.
(upbeat instrumental music) (audience applauding)
Thank you very much.
(audience applauding)
Thank you. (audience applauding)
(upbeat instrumental music)
Good morning everyone and thank you.
Thank you, Rob, for your leadership
of the American Bankers Association.
I greatly appreciate the invitation
to be with all of you at an important moment.
As everyone in this room knows, the American economy relies
on a healthy banking system that can provide
for the credit needs of families and businesses.
American households depend on banks
to finance their homes, invest in an education,
and otherwise improve their standard of living.
Businesses borrow from these institutions
to start new companies and expand existing ones.
Almost two weeks ago we learned of problems
at two banks that could have had significant impacts
on the broader banking system and the economy.
The situation demanded a swift response.
In the days that followed,
the Federal Government delivered just that,
decisive and forceful actions
to strengthen public confidence
in the US banking system and protect the American economy.
Let me be clear,
the government's recent actions have demonstrated
our resolute commitment
to take the necessary steps to ensure
that depository savings and the banking system remains safe.
Our approach had two main pillars.
First, we worked with the Federal Reserve and the FDIC
to protect all depositors in the resolutions
of Silicon Valley Bank and Signature Bank.
The steps we took were not focused
on aiding specific banks or classes of banks.
Our intervention was necessary
to protect the broader US banking system.
And similar actions could be warranted,
if smaller institutions suffered deposit runs
that posed a risk of contagion.
I believe that our actions reduced the risk
of further bank failures
that would've imposed losses on the deposit insurance fund,
which is paid for through fees on banks.
Second, we announced a new facility
to provide additional liquidity to the banking system.
The Fed's new lending facility,
the Bank Term Funding Program is designed
to help banks meet the needs of all of their depositors.
The situation is stabilizing,
and the US banking system remains sound.
The Fed facility and discount window
lending or working as intended
to provide liquidity to the banking system.
Aggregate deposit outflows
from regional banks have stabilized
and as you know, 11 banks,
including the very largest and some regional banks,
announced $30 billion in deposits
into First Republic Bank last week.
This support represents a vote of confidence
in our banking system.
We're continuing to monitor conditions closely.
My team and I have been in close communication
with many of you,
in addition to federal and state regulators,
other market participants, and international counterparts.
While we don't yet have all the details
about the collapse of the two banks,
we do know that the recent developments
are very different than those
of the global financial crisis.
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.
Our financial system is also significantly stronger
than it was 15 years ago.
This is in large part due to post-crisis reforms
that provided stronger capital standards
among other important improvements.
In the coming weeks it will be vital for us
to get a full accounting of exactly what happened
in these bank failures.
Regulators have already announced a review
into Silicon Valley Bank.
We are currently focused on the situation at hand,
but we will need to reexamine our current regulatory
and supervisory regimes,
and consider whether they're appropriate
for the risk that banks face today.
We all share an interest in ensuring
that the United States remains the strongest
and safest financial system in the world.
Given recent developments,
I think it's important to reaffirm a broader point.
Our dynamic and diverse banking system
is critical to the American economy.
Large banks play an important role in our economy,
but so does small and mid-size banks.
These banks are heavily engaged
in traditional banking services that provide vital credit
and financial support to families and small businesses.
They also increase competition in the banking sector,
and often have specialized knowledge and expertise
in the communities they invest in.
Indeed, many of these banks have played an important role
in supporting our economic recovery.
In the depths of the pandemic,
Treasury was tasked with getting money quickly
and responsibly to those who needed it.
So we work closely with many of you
to send economic impact payments
to millions of families.
You also worked with us to deliver advanced payments
from the enhanced child tax credit,
which helped cut child poverty nearly in half in 2021.
And we've collaborated to rapidly deploy assistance
to hundreds of thousands of homeowners facing foreclosure.
I also know that many of you are working
with state governments to inject new financing
into small businesses,
as part of our state's small business credit initiative.
In the prior iteration of this program
lenders with less than $10 billion in assets
accounted for 95% of all program-supported loans.
Our administration has also been focused on working
with mission-oriented banks
to put us on a path toward inclusive economic growth.
For example, Treasury's Emergency Capital
Investment Program has invested almost $8.4 billion
in depository institutions
that are CDFIs and MDIs.
Treasury is committed to ensuring
the ongoing health and competitiveness
of our vibrant community and regional banking institutions.
So to end, let me return to where I started,
a safe and sound banking system is integral
to the health of the American economy,
and we are squarely focused on doing our job.
And you should rest assured that we will remain vigilant.
I look forward to continuing to work together
to strengthen our banking system
and our nation's economy, thank you.
(audience applauding)
Thank you. (audience applauding)
-: Secretary Yellen, thank you for your leadership
during this time of stress,
and for taking time not only to deliver
those important remarks,
but to also give us a couple of questions as well.
-: Sure. -: Let me start,
I think an obvious one and that's kind of the path forward,
You've spoken about the extraordinary action
that the Treasury, and the Fed,
and the OCC, and the FDIC took,
but you also spoke about, or have spoken about
the making sure we have to understand the root causes
of the factors before determining
whether further regulatory or policy action
needs to be taken.
Can you expand on that and kind of give us an idea
of what you and your fellow regulators are considering?
You know, where do we go from here?
-: Okay, very good question.
So let me just start by saying
that our banking system is sound,
even as it's come under some pressure.
As I indicated, this is different than 2008.
2008 was a solvency crisis.
Rather, what we are seeing are contagious bank runs.
We demonstrated last week
that the Federal Government is resolutely committed
to taking actions that will mitigate
financial stability risks where that's necessary.
And every step we have taken has been intended
to reassure the public
that our banking system is resilient,
and that we stand behind the banking system.
The public should have confidence in our banking system,
and it's our intention to remain vigilant
in the days and weeks to come.
And as I said in my remarks,
that means potentially intervening
if a smaller bank experiences
the kinds of difficulties we have seen
that pose the risk of contagion.
So banks of course need access
to adequate liquidity when they face deposit outflows.
And really that's the reason,
that was the motivation
for the founding of the Fed in 1913.
So we need to make sure that the Federal Reserve
is able to provide the liquidity that banks need.
And we see the Fed's new facility
and discount window lending as now working
as intended to provide liquidity to the banking system.
We're monitoring conditions closely,
communicating very actively
with federal and state regulators,
and in touch with you,
and many of the banks in this room.
We see the situation as having improved,
aggregate deposit outflows have stabilized.
That's really what we are focused on,
but you asked me to look forward.
So we don't yet have all of the details
about these two banks.
As I said, we know though that this is
a very different situation
than the global financial crisis
when banks came under stress
because they had subprime assets that lost value,
and that was a situation where there was
a shortage of capital.
We have post-crisis reforms
that have greatly improved capital standards,
and other important improvements in supervision.
So I think there will be time, it will be necessary,
but there's time to evaluate
whether some adjustments are necessary in supervision
and regulation to address the root causes of the crisis.
I don't wanna speculate at this point
on what those adjustments might be.
What I'm focused on is stabilizing our system
and restoring the confidence of depositors.
But it has been announced
that the Vice Chair for Supervision, Michael Barr,
will undertake a thorough review
of the failure of Silicon Valley Bank,
with an eye to determining next's steps.
So there will be time to consider
whether some adjustments are necessary.
Now we need to stabilize the system
and restore confidence in its soundness.
-: Thank you for that answer,
and also thank you for your timely comments
around deposit insurance and smaller banks,
and for emphasizing that in your answer, thank you.
Second question I had for you, Secretary Yellen,
you know, bankers in this room today
represent banks from all across the country,
all across the size spectrum,
from small community banks, mid-size banks, regional banks,
money center banks, globally active banks.
It's the entire US banking sector.
Can you speak to the importance of kind of the industry
working together and unity,
and what banks of all sizes should be focused on right now
to reaffirm the faith that customers have placed in them?
-: Absolutely, so let me just start by saying
that community banks play a vital role in providing credit
and financial services to small businesses,
to farms, to consumers
in thousands of local communities around the United States.
And they can provide services that larger banks
can't replicate because they know the special features
of their markets
and the people who are active
in those communities.
And I think the most important thing
for all of those banks is to remain focused
on serving the needs of their communities.
We have an economy that remains very strong and vibrant.
We've seen more new businesses formed
in the aftermath the last couple of years,
in the aftermath of the pandemic.
And those businesses and households need support,
and that is the prime business of community banks.
So I guess I would start there.
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.
And I believe we do have
a very strong and resilient banking system,
and all of us need to shore up the confidence of depositors
that that's the case.
So let me just say again that all of the actions
that we have taken are designed
to bolster confidence in the banking system,
and to demonstrate that we are ready and prepared
to take the steps that are necessary to ensure depositors
that the banking system and their deposits are safe.
-: Thank you, Secretary Yellen,
and in fact, my own, as I opened the conference,
right before you arrived, talking about the strength
and the resiliency of the industry,
and confidence in the industry,
and the health were exactly the themes
that we used to kick off this conference.
-: Whoo! -: We're aligned
certainly on that.
I know your time is tight,
and you have a 1000 places to go,
but as a Treasury vet myself, I have to ask you
about another really important issue
around financial stability.
And so before the stress of our sector,
over the last several days,
we were looking at the need to raise the debt ceiling
something you're very familiar with,
sometime this summer given the associated economic risk
to our markets and to our economy of not doing so.
Given the situation we're now in,
the events of the last 11 days, how important is it
for Congress and the administration
to resolve this debt ceiling standoff,
acknowledging that people are talking about current events,
and act swiftly to ensure the full faith
and credit of the United States?
-: Well, I consider it utterly essential
for Congress to act to raise or suspend the debt limit.
I really worry
about waiting until the last minute to do it.
What we saw in previous debt limit impasses,
and I'm thinking especially of 2011
when it took until the last minute
to be resolved.
The government's credit rating was downgraded,
and that's the first time that's happened
in the history of our nation.
And that's something this kind
of brinksmanship with the debt limit,
I think really imposes substantial harm.
It raised the cost to the United States of borrowing,
and in turn, the short-term borrowing costs
of millions of consumers and small business owners.
And we have the safest
and most liquid financial system
of any in the world.
The dollar serves as a reserve currency.
US Treasury securities are the go-to asset,
whenever there are concerns about anything,
any economic or financial developments around the world.
And this is something that we should prize,
and is a great benefit to our country,
and nothing should be done to throw that into danger.
And so if there were a failure to raise the debt limit,
I believe it would be absolutely catastrophic.
And take an economy that is performing very well,
we've had the fastest recovery
from a downturn that we've ever seen,
and the fastest recovery of any nation around the globe.
The unemployment rate is near a 50-year low.
The economy is doing well,
and it would threaten all of that.
Now, that said, having a sound fiscal policy
and making sure our country is on a sustainable fiscal path
is vitally important,
and this is a priority for the President.
He has just issued a budget that contains
deficit reduction in order to make sure
that our debt to GDP ratio remains stable,
and that net interest costs
that the government pays
remain well contained and manageable.
There are different views about what we need to do
to be on a sustainable fiscal course.
And the President, he's made clear
that he stands ready to address fiscal policy.
But importantly, that's a conversation
that needs to happen over time
and in the appropriations process,
and not through the threat of forcing a default.
Preventing a default,
making sure that the government pays bills
that Congress has already committed us to.
This is simply a basic responsibility
that Congress has to the American people,
and it's something that needs to be done without conditions.
I guess I would just mention one further thing
in this regard.
It's something very much on my mind.
I, you know, I sometimes hear it suggested
that Treasury can and should prioritize payments.
-: Mm-hmm. -: If Congress doesn't raise
the debt ceiling,
we go through a list. -: Right.
-: Pay some things first and other things later.
In that regard, let me just say,
Treasury makes absolutely millions of payments every day.
And our system is built to pay our bills on time,
not to delay bills or try to sort payments
into different categories, and to pay some ahead of others.
And there's a reason that Treasury secretaries
of both parties have rejected the idea
of prioritization as a risky and dangerous idea.
It's never been,
it's never been done.
And prioritizing is nothing other
than default by another name.
So I believe it's essential
that Congress raised the debt ceiling
and that they do it promptly,
in order not to inflict a truly catastrophic wound
on our economy and financial system.
-: Well, Secretary Yellen, our time is up.
Thank you for your leadership at this time,
and thank you for your timely comments today.
Please, ladies and gentlemen, please join me
in thanking Treasury Secretary Janet Yellen.
(audience applauding) -: Thank you very much.
(audience applauding) Thank you.
(audience applauding)