Bank Stocks Rally As Yellen Backs US Banking System, Reports Surface Of Treasury Talks For Wider Deposit Backstop

Zinger Key Points
  • "Our banking system is resilient and we stand behind it," Yellen says.
  • The Treasury Department is reportedly studying the feasibility of a full deposit guarantee.

Treasury Secretary Janet Yellen offered some reassuring words for the U.S. banking system Tuesday, while the Treasury Department is reportedly considering options to temporarily guarantee deposits above and beyond the $250,000 FDIC limit.

Speaking at the American Bankers Association's Washington, D.C. summit, Yellen said the government is ready to take action to mitigate risks to financial stability.

"With the steps we have taken, our banking system is resilient and we stand behind it. The public should have confidence in the banking system," she said.

Related Link: Markets Anxiously Await Fed's Interest Rate Call After Bank Failures Rattle Wall Street

Are Wider Deposit Backstops Ahead? Yellen also stated the government could backstop additional deposits if required to prevent contagion, offering more reassurance after she denied expanding the deposit guarantee last week.

Bloomberg reported Tuesday that U.S. authorities are looking for ways to temporarily increase FDIC coverage over $250,000 without Congressional approval. 

Bill Ackman, the CEO of Pershing Square Capital Management, has been one of the most prominent advocates for a temporary 100% guarantee on U.S. banking sector deposits.

"I continue to believe that the best course of action is a temporary FDIC deposit guarantee until an updated insurance regime is introduced, for if bank number five is closed, the market's attention will move to banks six, seven and eight," he wrote on Twitter.

Related Link: The Bull, Bear Cases For First Republic Stock As JP Morgan Tries To Rescue The Bank

Banking Stocks Rally Across The Board: Bank stocks rallied across the board Tuesday on news of liquidity support and a potential complete deposit guarantee.

First Republic Bank FRC skyrocketed 38%, Bank of America BAC 3.8%, Citigroup C 3.7%, Morgan Stanley MS 3.4%, Wells Fargo WFC 3.1%, Goldman Sachs GS 3%, JP Morgan Chase & Co. JPM 2.9%.

The SPDR Financial Sector Select XLF rose 2.4%, outperforming all other sectors. The SPDR S&P Regional Banking ETF KRE soared 5.7%.

Other than FRC, the biggest gainers among small and mid-sized banks are Western Alliance Bancorp WAL up 18%; Pacwest Bancorp PACW, up 14%; First Foundation Inc. FFMW, up 13%; and Customers Bancorp Inc. CUBI, up 11%.

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