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Janet Yellen will pledge to protect depositors at smaller US banks

Treasury secretary Janet Yellen will pledge to protect depositors at smaller US banks on Tuesday after panicked customers pulled billions in funds, triggering a banking crisis.

US officials have stepped in to guarantee the deposits of two banks that collapsed earlier this month and Yellen will make clear that they will step in again if the crisis continues.

“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,” Yellen is expected to tell the American Bankers Association.

The US insures bank deposits up to $250,000 through the Federal Deposit Insurance Corporation (FDIC). Smaller US banks have been pummeled by a wave of withdrawals as depositors have worried about their banks’ finances and whether that limit will be breached.

After Silicon Valley Bank (SVB) and Signature Bank collapsed earlier this month it was revealed that SVB had over $150bn in uninsured deposits as of the end of last year.

Yellen’s comments come as another US bank, First Republic, is struggling. Depositors are believed to have withdrawn $70bn from the bank since the collapse of SVB.

Last week Wall Street’s biggest banks mounted a $30bn rescue effort for First Republic. But on Monday the bank’s share price collapsed again, falling 46% after reports that the bank may have to raise more money.

The crisis spread over the weekend leading to the cut-price takeover of long-troubled Credit Suisse.

Yellen will argue that the situation is “stabilising” and the US banking system remains “sound”. “We are squarely focused on doing our job,” she will add. “And you should rest assured that we will remain vigilant.”

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