Yellen Reassures Banks

US Treasury Secretary Janet Yellen expressed confidence in the US financial system in a speech yesterday, saying regulators are ready to further support troubled banks if the need arises. The speech came amid the worst banking crisis since 2008, with failures at several midsized banks and stock volatility across the industry.

Elevated interest rates have placed pressure on some banks with investments in devalued long-term bonds, forcing them to sell those bonds at a loss to shore up cash for customer withdrawals. After Silicon Valley Bank and Signature Bank failed earlier this month, regulators set up an emergency program where banks facing similar cash crunches could borrow to keep money available for customers without needing to sell holdings at a loss (see 101).

The Federal Open Markets Committee is expected to raise the federal funds rate another quarter percentage point as its two-day meeting concludes today, though analysts observed it will need to reassure investors concerned over banking strains.