ADDS YELLEN'S COMMENTS ABOUT DEBT LIMIT CRISIS
By Ovunc Kutlu
ISTANBUL (AA) - US Treasury Secretary Janet Yellen said Tuesday that the current banking crisis is different than the 2008 financial crisis and stressed the importance of stabilization and restoring confidence.
"We're seeing contagious bank runs," she said in an address to the American Bankers Association conference in Washington, D.C.
"This is a very different situation than the global financial crisis when banks came under stress because they had sub-prime assets that lost value. And that was a situation where there was a shortage of capital," she said.
Yellen noted that the US had post-crisis reforms after the 2008 financial crisis that improved capital standards and supervision.
"There's time to reevaluate whether some adjustments are necessary in supervision and regulation to address the root causes of the (current) crisis," said Yellen.
She stressed that the immediate focus should be on stabilizing the banking system and restoring the confidence of depositors.
Her comments come as four banks in the nation suddenly collapsed in recent weeks, raising fears that their financial difficulties could cause a domino effect, affecting the rest of the banking system in the world's largest economy and beyond.
The Treasury head said community banks play a vital role in providing credit from financial services to small businesses and consumers.
"They can provide services that larger banks can't replicate because they know the special features of their markets and people who are active in those communities," she said. "We have an economy that remains very strong, vibrant ... Community banks in this country are strong and resilient."
Yellen emphasized that banks need to reassure customers that they are strong and resilient, adding that "the government needs to do exactly the same."
"All of us need to shore up the confidence of depositors,” she said. “All of the actions that we've taken are designed to bolster confidence in the banking system and to demonstrate that we're ready and prepared to take the steps that are necessary to insure depositors that the banking system and their deposits are safe.”
Regarding the current debt limit standoff in the US, Yellen said: "I consider it utterly essential for the Congress to act to raise or suspend the debt limit. I really worry about waiting until the last minute to do it."
"What we saw in the past debt limit impasses, especially in 2011 when it took until the last minute to be resolved -- the government's credit rating was downgraded and that was the first time it happened in the history of our nation," she told.
Yellen said the debt limit crisis "imposes substantial harm" since it raises the costs of the US' borrowing and in turn, short-term borrowing costs of millions of consumers and small-business owners.
"If there were a failure to raise the debt limit, I believe it would be absolutely catastrophic," she stressed.
Yellen told lawmakers last week that the failure to raise the limit in a timely manner would be devastating for the economy and American banks.
She warned Congress numerous times in recent months about the issue, urging lawmakers to raise or suspend the limit.
"Preventing a default, making sure that the government pays bills that Congress have already committed us to, this is basically a simple responsibility that the Congress has to the American people, and this is something that needs to be done without conditions," she said.
"Treasury makes absolutely millions of payments every day and our system is built to pay our bills on time, not to delay bills, or try to sort payments into different categories,” she said. “It is essential for the Congress to raise the debt ceiling.”