The U.S. Financial Stability Oversight Council (FSOC), a multi-regulator body, affirmed on Friday that the U.S. banking system remains “sound and resilient” in the face of stress experienced by some institutions, according to a statement by the U.S. Treasury. This announcement comes as an effort to assuage jittery markets and bank depositors amidst a two-week-old banking crisis.
Treasury Secretary Janet Yellen chaired a closed meeting where the FSOC participants received a presentation on market developments from the Federal Reserve Bank of New York staff. The Treasury’s statement highlighted that “while some institutions have come under stress, the U.S. banking system remains sound and resilient.” The FSOC comprises top officials from key financial regulatory agencies, including the Federal Reserve, the Federal Deposit Insurance Corp (FDIC), the Office of the Comptroller of the Currency, and the Securities and Exchange Commission.
The meeting occurred amidst fluctuating markets and growing concerns that the recent banking crisis, triggered by the failures of Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O), could exacerbate and lead to more runs on smaller banks. The FSOC last convened on March 12, the same day the FDIC, Fed, and Treasury introduced emergency measures to support all deposits in the two failed banks and established a new Fed lending facility to enhance liquidity for all banks.
On Friday, two prominent House Republicans, Representatives Bill Huizenga and Andy Barr, who chair House Financial Services subcommittees, requested that Yellen supply additional information about the March 12 meeting, including unredacted minutes, votes, details on timing, and bank stress test results. They emphasized the significance of the Treasury, Fed, and FDIC’s determinations in the Silicon Valley Bank and Signature Bank cases.
The FSOC meeting took place as European bank stocks declined sharply due to fears of global banking contagion, with Deutsche Bank and UBS being adversely affected. Concerns persist that regulators and central banks have yet to contain the most severe shock to the banking sector since the 2008 global financial crisis. However, Wall Street shares rebounded from a previous sell-off, as three Federal Reserve bank presidents asserted in separate statements that there was no indication of financial stress worsening this week, allowing for a quarter-percentage-point interest rate hike.
Yellen, in an attempt to allay concerns about further bank deposit runs, informed U.S. lawmakers on Thursday that she was prepared to replicate actions taken in the Silicon Valley and Signature Bank failures to protect uninsured bank deposits if more deposit runs were threatened. The decision to use “systemic risk exceptions” was made by Yellen, President Joe Biden, the FDIC, and the Fed, which oversaw Silicon Valley and Signature Banks.