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Yellen says the cause of recent bank failures is still a mystery


Treasury Secretary Janet Yellen told a roomful of bankers Tuesday that the U.S. banking system is “stabilizing,” but she’s still not sure why two banks failed and a third needed to be rescued by other large banks in the past two weeks.
Addressing the American Bankers Association summit in Washington, Ms. Yellen said Tuesday that the administration’s actions to close Silicon Valley Bank in California and Signature Bank in New York “reduced the risk of further bank failures.” They were the second-and third-largest bank failures in U.S. history.
Ms. Yellen said the bank collapses were “very different” from the financial meltdown of 2008, which resulted in trillions in losses.
“2008 was a solvency crisis, rather what we’re seeing now is contagious bank runs.”
But she said she doesn’t know yet what caused the bank failures this month, which led to fears of a broader run on bank deposits.
“In the coming weeks, it will be vital for us to get a full accounting of exactly what happened in these bank failures,” Ms. Yellen said. “We don’t yet have all the details about these two banks. There’s time to evaluate whether some adjustments are necessary in supervision and regulation to address the root causes of the crisis. I’m focused on stabilizing our system.”
Many economists are blaming the impact of high inflation, which has prompted the Federal Reserve to raise interest rates eight times in the past year. The higher rates, in turn, have caused a cash crunch at some banks by lowering the value of their long-term investments.

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