Yellen claims that regulators may cover the deposits of other failing banks.

Treasury Secretary Janet Yellen stated on Tuesday that federal regulators are willing to provide mid-sized banks struggling to deal with the impact from the bankruptcies of Silicon Valley Bank (SVB) and Signature Bank with the same financial assistance—possibly even extended deposit insurance.

In statements to the American Bankers Association, Yellen stated that smaller institutions may have deposit runs that increase the danger of contagion, which "could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."

Despite approximately 90% of the funds being in high-value accounts with balances above the FDIC's $250,000 cap, all $264 billion in combined deposits at SVB and Signature Bank were guaranteed by the Federal Deposit Insurance Corporation (FDIC). The FDIC additionally provided loans to failing banks to assist them in preventing the loss-making sale of Treasury notes and mortgage-backed securities in order to fully meet depositor withdrawal requests.

"“I believe that our actions reduced the risk of further bank failures that would have imposed losses on the Deposit Insurance Fund, which is paid for through fees on insured banks," according to Yellen.

"The situation is stabilizing. And the U.S. banking system remains sound...Aggregate deposit outflows from regional banks have stabilized ," she added. 

In addition to the collapse of SVB and Signature Bank, Credit Suisse announced a merger with larger Swiss bank UBS. Moreover, San Francisco-based First Republic Bank received a $30 billion lifeline from 11 major U.S. banks. Bank runs were a problem for both financial organizations as depositors tried to transfer their funds to bigger, more stable banks.

Because SVB and Signature Bank failed, trade has been temporarily suspended for PacWest Bancorp, Regions Financial Corp., and Zions Bancorporation, all mid-sized banks.

Federal regulators are still taking action to support SVB and Signature Bank.

The FDIC stated on Sunday that New York Community Bancorp would buy all of the deposits and a portion of the loan portfolios of Signature Bank. According to the organization, the failure of Signature Bank cost the Deposit Insurance Fund almost $2.5 billion.

The agency revealed on Monday that it will continue to look for a buyer for SVB's assets through the end of the week.

"A safe and sound banking system is integral to the health of the American economy. We are squarely focused on doing our job," added Yellen. "And you should rest assured that we will remain vigilant."

By fLEXI tEAM