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US Treasury head says failure of a small bank can trigger demise of other banks

The US Treasury Department’s chief said Wednesday that the failure of a small bank can trigger the demise of smaller banks.

“The failure of a small bank, like a community bank, can likewise trigger a run on other banks, and failure of that bank could lead to a systemic failure,” Janet Yellen said before the Financial Services and General Government Subcommittee in the US Senate.

Yellen’s comments came in the aftermath of the sudden demise of Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank and First Republic Bank, which have all gone under within a matter of weeks.

“SVB has experienced a calamitous run, a run that was so enormous that it overwhelmed the liquidity of this bank, and it created the potential for the fear for the safety about uninsured depositors in many other banks,” she told lawmakers. “It risked contagion throughout the banking system.”

“Our top priority is to protect the health of the US economy,” Yellen added.

The Treasury head said officials are determined that the current banking situation poses “a danger to the broader banking system and the American economy.”

She asked them to take “emergency actions designed to mitigate risks to the banking system” and noted “aggregate deposit outflows from regional banks have stabilized.”

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