Wally Adeyemo on CNBC’s Delivering Alpha, September 28, 2022.
Scott Mill CNBC
WASHINGTON – The number of emergency loans made to banks this week by the Federal Reserve is key to stabilizing withdrawals from small and medium-sized US banks, Deputy Treasury Secretary Wally Adeyemo told CNBC on Friday.
The fallout from swift action by federal regulators last weekend to stabilize the US banking system helped contain the fallout but is still rippling through the economy nearly a week later.
The market is still not fully priced in federal aid or $ 30 billion 11 banks saved in First Republic Bank to help boost confidence in the system, he said.
“It will take time for the market to catch up to the actions that we and the banks have taken,” Adeyemo said on CNBC’s “Squawk on the Street.” “And what we’ve done now is give this institution time to think about how to manage the business going forward.”
After the collapse of California-based Silicon Valley Bank and New York-based Signature Bank on Friday and Sunday, respectively, the regulator announced some emergency measures to stabilize the nation’s banking system.
They include guaranteeing customer deposits in two failed banks; creating a new fund, the Bank Term Funding Program, to make short-term loans to banks on low terms; and easing conditions in the Fed’s traditional overnight bank arm, the so-called “discount window.”
The result of these actions was a dramatic change in the fortunes of many banks, Adeyemo said. This includes banks that have anticipated potential mass withdrawals, and pledged collateral before expecting emergency loans.
“When some banks come to the weekend prepositioned to have to ask for more liquidity, what we found over the course of the week is that they have to use less and less of it,” said Adeyemo. “And now we have seen a stabilization in terms of deposits to these institutions.”
But while the trend is moving in the right direction, the amount of money banks borrowed last week through Wednesday from the Fed’s discount window set a new record at $153 billion, according to the Fed’s weekly report.
The previous record for discount window loans was $111 billion, set at the height of the financial crisis in 2008.
The identity of the lending banks will not be disclosed for another two years. But these numbers show that the banking sector is not stable enough.
Continuing questions about bank stability dovetail with other questions arising from the Fed’s actions. Whether uninsured deposits in banks that fail in the future will be protected in the same way at SVB and Signature.
“Are all uninsured depositors in the US banking system protected today?” CNBC’s Sara Eisen asked Adeyemo.
The answer is that, right now, this is the goal of the Biden administration, but not the reality.
“Finally, the president has made it clear that his goal is to protect depositors so that they have the money they need to run their businesses, and make sure that their families are taken care of,” Adeyemo said.