The financial world is filled with unease because Treasury Secretary Janet Yellen is as confusing as her boss is. Yellen created some chaos on Wednesday when she seemed to walk back to assurances she had just given the day before.
On Tuesday she said that financial authorities would guarantee large bank deposits.
This was needed because of the collapse of Silicon Valley Bank where the vast majority of accounts were more than the $250,000 threshold guaranteed by the Federal Deposit Insurance Corporation.
Some investors have called for deposit insurance for all account holders across the financial system with balances above $250,000 until the crisis subsides.
Yellen made her promise while speaking to the American Bankers Association on Tuesday when she said that interventions like the one that protected Silicon Valley Bank, account holders. She said this “could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
People in the market interpreted that as an implicit guarantee of all deposits.
But on Wednesday, Biden’s Yellen told the Senate Appropriations Committee that she has “not considered or discussed anything” related to “blanket insurance or guarantees of all deposits.”
Cue a new slide in the market.
Bill Ackman, the Pershing Square Capital Management CEO, said that Yellen’s first comment “definitely help and hopefully mitigate the need for a temporary deposit guarantee.” He later noted that the statement declaring that “systemwide deposit guarantees were not being considered” had the opposite effect.
“A temporary systemwide deposit guarantee is needed to stop the bleeding,” he contended. “The longer the uncertainty continues, the more permanent the damage is to the smaller banks, and the more difficult it will be to bring their customers back.”
Which Yellen are we to believe? This is not the kind of stability that is necessary at such a volatile economic time.