WASHINGTON - The US banking sector is "stabilizing" after the recent failures of Silicon Valley Bank and Signature Bank rattled the industry, Treasury Secretary Janet Yellen told a lenders' conference as leaders seek to calm global worries.
Stock markets extended gains with US and European indices closing higher as fears of a financial crisis eased, after the US Federal Reserve and other major central banks kicked off a coordinated effort this week to boost lenders' access to liquidity.
The collapses had caused a crisis of confidence, with many customers of similarly sized banks withdrawing their money and depositing it in larger institutions -- considered too big for the government not to bail them out if they faced failure.
But "outflows from regional banks have stabilized" following authorities' moves to shore up confidence and stem contagion, said Yellen in a speech to an American Bankers Association (ABA) conference in Washington.
"Our intervention was necessary to protect the broader US banking system," she added.
She suggested that the United States stands ready to intervene further if needed, noting that "similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."
For now, the banking industry remains resilient despite the upheaval, said ABA chief executive Rob Nichols at the event.
"The overall banking industry remains strong, resilient, well-capitalized, liquid and serves customers and communities extremely well," he said.
He stressed that the failed banks and their business models are "not typical" of the thousands of others that operate in America.
"There was a particular and unusual combination of factors at play in both of these failures related to their portfolios, customer concentration and their risk management in a rising rate environment," he said.
After SVB's collapse, the Treasury, Federal Reserve and Federal Deposit Insurance Corporation set out plans to ensure its customers would be able to access their deposits. A similar exception was announced for Signature Bank.
The Fed also introduced a new lending tool for banks in an effort to prevent a repeat of SVB's quick demise, and has since launched a drive with other major central banks to improve banks' access to liquidity.