Refinitiv Newscasts - Treasury Secretary Yellen speaks to bankers in Washington 1

Auswide Bank

21/03/2023 15:52

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Source: Reuters

Description: U.S. Treasury Secretary Janet Yellen addresses American Bankers
Association’s annual Washington Summit. (Livestream courtesy of the American
Bankers Association)
Short Link: https://refini.tv/3yU1TVT

Video Transcript:

>> [inaudible 00:12:54] segments of the industry. And we've really got to take
our time in doing that and not just a knee-jerk reaction. >> I would add, I
really agree with Rob's comments. I think there's confusion in the market
about what is insured, who has ensured. We need to have that discussion, but
it can't be a knee-jerk reaction. It has to have a thoughtful debate, and
thoughtful research, and we have to go about it in a logical manner. >> We're
pulling straws earlier and I said, Jim, I'm going to ask you to explain the
Deposit Insurance Fund to the rest of us who don't understand fully. And it
sounds like they're a lot of Americans who don't. >> Well, deposit insurance.
We all have insurance. Everyone in this room, everyone watching has different
forms of insurance. In its simplest form, deposit insurance works very much
the same way. Banks all across the country, all of us our banks pay into the
Deposit Insurance Fund. When there is an issue and a bank has to be resolved,
you that know that fund is there to cover that. I think it's really important,
Peter to remind folks that since the FDIC was created, there's never been an
insured deposit that was not covered by the FDIC in the event of something bad
happening with their bank. I think that should give customers a tremendous
amount of competence in how this has worked. My hats off to the FDIC and the
regulators for the way they have protected and gone about caring for that
fund. I think it's important and I think everybody needs to understand it and
they also need to understand, this is not taxpayer money. This is money that
banks pay into this fund just like everyone sitting in this room pays their
insurance premiums, whether it's on their home whether it's on their car. It's
the same concept, I think Peter. But I'm not sure everybody understands that
because it didn't come up until there's a situation where it becomes
important, but it's important to understand that. >> I would add, Jim that
what's a little bit different about FDIC insurance is that we pay for it as
bakers. Comes out of our margin, but our clients don't pay for it. They don't
recognize that that's insurance. So it's a little bit different than my car
insurance that goes up because you can learn to steal a car on TikTok. I
happened to drive a KIA and pretty hard to get insurance on a kIA right now.
But that's an important educational piece and that's part of what we should be
thoughtful about as we think about modernizing the system. Just increasing
coverage isn't modernization. Looking at coverage limits, how it's
administered, how you get additional coverage. Those would all be parts of
modernization. Changing the risk-based premium mechanism would be part of
modernization. But I don't think any of us in this room and anybody at the
FDIC has an answer tomorrow. So again, let's be thoughtful and learn from
this. The other thing I think we can really do a better job of is this topic
of $250,000. I was reading an article this morning about will rates go up or
will they go down and where should I put my money? And the author of the
article said, just don't put more than $250,000 in any one place. And I kid
you not, we can all structure especially for consumers deposit coverage well
in excess 250,000. If you're married and have two kids, I can get some real
close to two million dollars in about 15 min. So that's not as true for
businesses. But the other thing is many of us are in networks where we can lay
deposits off with others and provide coverage. So there's an educational piece
already about how much insurance do you have? >> Don't put your cell phone
number because I'm afraid people are going call you right now. I would just
emphasize with what Laurie says, I think it's important that our employees
know and can explain FDIC insurance and how you can set up different accounts
to maximize the coverage. We had a customer that came in and asked for a
cashier's check for some of their deposits. Bringing down the deposit she had
in the bank to less than $250,000. The manager saw that, she called the
customer, she talked to the customer, the customer brought it back and
restructure for deposits to be fully insured. I think it's really critical
that our employees can have that conversation with our customers. >> We can
steer our customers to that estimator on the FDIC site because it's really
user-friendly. I got on it this morning just to see if it still worked like I
thought it did. >> Worked okay? >> It is well. >> In our time remaining, I
want to get to two other things. The first is just the economy and we happen
to be timing is everything in Washington. We're here with this room full of
bankers. Well, the Federal Reserve is also meeting today and tomorrow with the
latest decision on interest rates. If you could reach Chair Powell and offer
your thoughts about what's happening out there and what should happen with
interest rates. Any thoughts about the next step or interest rates and the
impact the last few days might be having on the Federal Reserve. Any of you
want to tackle that? >> Well, Peter I'll start out, I think chairman Powell
has said that their decision to raise or lower rates will be based on data.
And as I look at the data, it seems we're in store for another rate increase.
But the events of the last week, I think, makes liquidity king now. And the
Fed realizes that. I think there's a strong probability that credit cost will
go up. Credit will become more expensive and perhaps less available as banks
pullback and protect their liquidity. And that will have a dampening impact on
the economy and on-demand. Even more so than a 50 basis point hypo half. I
hope chairman Powell will realize that. >> The Fed's job is to control
inflation. We're in inflation. The data exactly what Scott is saying, they've
got to do their job and control inflation. Nobody likes it. Our customers say,
why are the rates keep going up and up when you use it that or is it
inflation? What's the trade-off that's there? And they they've got to continue
to do their job. >> I agree. What are we really saying here, Peter? We're
saying, Listen, don't make knee-jerk reactions. >> And I would encourage the
Fed to play the long game here and to do their job and to make sure that we
tackle inflation here. I think it's still out there. I would expect everyone
in this room watching on TV still feels like you go to buy something and you
are like, wow, that's really gone up, whether it's goods or whether it's
services. And I think they need to play the long game, fix this. Could they
overreach? Could they overstep? Of course, but we need to tackle inflation.
That's their job and I think they'll do that. I really do. I've got a lot of
confidence in them. >> Peter, I have to be a little bit careful about this
question because I sit on the Seattle branch board of the Federal Reserve. And
so in that respect, I'm sure it doesn't go directly to the Chairman's ear. I
do get to tell the Fed a lot about what I think. But here's something that I
think is really important for folks to understand. Mary Daly, who's the
president of the 12th district in San Francisco, really listens to what
interest rates impact is on families and small business. Sometimes I think we
think of the Fed as this entity, and we look at the mandates, and we look at
the Fed governors and it all seems either esoteric or too far removed or
sometimes even a blunt monetary instrument. But when I look at Fed presidents
like Mary Daly and see how much they want to know, what's the story behind the
data? What does it mean to this family? What's the impact in Alaska? I think
that's reassuring. And we should remember that the Fed is keen for
observations and anecdotes too, and one of the things you can do is talk to us
bankers that are on these various Fed branch or regional boards and share
those anecdotes because the data lags, right? >> Right. >> And we are often
boots on the ground right here that really see what the impact is. >> In our
limited time left, Dan, I want to turn to you. You had a LinkedIn post a few
days ago, as Chair of the ABA, but also in your role as CEO of the bank, where
you made a real appeal for industry unity right now during this time of
challenge. I want you to first of all ask you, why did you feel the need to
post that? And what's your message to this audience and the bankers who might
be listening on the live stream? >> Thank you, Peter. And I don't have 10,000
followers, but I felt that was the voice to put it out there, a business
setting, the LinkedIn post. United we stand, divided we fall. We're all
bankers. Most people in the room are in a variety of different banks. There
couldn't be a better example right here on stage. I'm CEO, he's a CEO, he's a
CEO, she's a CEO, but we're in different parts of the country, we're different
sized banks, 100 billion, 130 million. But we're still doing the same thing.
We're in this for our customers. Who's our most valuable asset in the bank?
Our customers are our most valuable asset. It does no good to be negative, and
I'm a very positive person. So I wanted to at least put that message out there
that a united industry is strong and we talk about the perception, the
resiliency of banking in general and we need to be strong. We need to stand
together and support each other. Scott is making a lot different loans in
Zions Bank than what Dan Robb is making. Dan Robb will go out in the field and
jump on the tractor with a customer and I can make that loan right on the spot
to that customer and do a really good job. Scott's bank is loaning
internationally. Jonesburg State Bank doesn't need to. So we need all banks,
large, small business, consumer, rural, city, all those different things. So I
wanted to just put the message out there that we need to be together. We need
to stand strong together. >> And Peter, I appreciate it. I would just say, we
all vote of thanks to Chase and the other 11 banks that put $30 billion into
First Republic Bank. That is a tremendous sign of solidarity. It's a sign of
faith in the industry, especially since those deposits are insured. And I
think we are in this all together. As Dan said, if one fails, we all fail.
We're in this together. >> On that note, I see my time is up. We're waiting
for the Treasury Secretary who squeezed us into her busy schedule. I want to
thank the four of you for joining us, for sharing your stories, what's
happening at your bank, and hopefully providing some reassurance to everyone
out there. So thank you all. >> And thank you, Peter, for a great job. >>
Thank you for that fantastic panel. Peter, great job. And again, thank you
everyone for being here. 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. >> Thank you. Thank you very much. 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 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 in 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 depositors'
savings, and the banking system remains safe. Our reproach 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 eating 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 suffer deposit runs
that pose the risk of contagion. I believe that our actions reduce the risk of
further bank failures that would have 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 of 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 are 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. The 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. Well, 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 re-examine our current regulatory and supervisory regimes and consider
whether they are 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-sized 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. 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 to cut
child poverty nearly in half in 2021. We've collaborated to rapidly deploy
assistance to hundreds of thousands of homeowners facing foreclosure. You also
know that many of you are working with state governments to inject new
financing into small businesses as part of our state small business credit
initiative. In the prior iteration of this program, lenders with less than $10
billion in assets accounted for 95% of all programs 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, treasuries
emergency capital investment program has invested almost $8.4 billion in
depository institutions that are CDFI's and MDI's. 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.
>> Secretary Elena, 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 the path forward. You've spoken about the extraordinary
action at the Treasury and the Fed and the OCC and the FDIC took, but you also
have spoken about 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 give us an idea of what you and your
fellow regulators are considering. Where do we go from here? >> 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're 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 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 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're 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 in 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 want to 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
with the failure of Silicon Valley Bank with an eye to determining next steps.
So there will be timed 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 Elena, bankers in this
room today represent banks from all across the country, all across the size
spectrum from small community banks, mid-sized banks, regional banks, money
center banks, globally active banks. It's the entire US banking sector. Can
you speak to the importance 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've taken
are designed to bolster confidence in the banking system, and to demonstrate
that we're 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 Elena. 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 use
to kick off this conference. We're aligned certainly on that. I know your time
is tight and you have a thousand places to go, but as a treasury vet myself, I
have to ask you about another really important issue around financial
stability. And 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 risks 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 to 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 that's
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 price and
is a great benefit to work 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
in 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 cost that the government pays remain well contained in manageable.
There are different views about what we need to do to be on a sustainable
fiscal course, and the president has 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 mentioned one
further thing in this regard. It's something very much on my mind. I sometimes
hear it suggested that treasury can and should prioritize payments. If
Congress doesn't raise the debt ceiling, we go through a list, pay some things
first and other things later. In that regard, let me just say treasury makes
absolutely millions of payments every day and error system is built to pay our
bills on time, not to delay bills or try to sort payments into different
categories and to paste 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 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 Elena, our time is up. Thank you for your leadership at this
time, and thank you for your timely comments today. Ladies and gentlemen,
please join me in thanking Treasury Secretary Elena. >> Thank you very much.
Thank you. >> Please welcome ABA Chief Policy Officer Naomi Camper. >> Good
morning. I'm not going to lie. It's a little intimidating following the
Treasury Secretary