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(WASHINGTON) — Treasury Secretary Janet Yellen said Tuesday that “the situation is stabilizing and the U.S. banking system remains sound,” after regional bank failures have shaken the U.S. banking system.

“The Fed’s facility and discount window lending are working as intended to provide liquidity to the banking system,” she said during a speech at a meeting of the American Bankers Association in Washington. “Aggregate deposit outflows from regional banks have stabilized.”

She said the government’s intervention in the failures of Silicon Valley Bank and Signature Bank were “necessary” — and said “similar actions could be warranted” to protect smaller banks.

“The steps we took were not focused on aiding specific banks or classes of banks,” she said. “Our intervention was necessary to protect the broader U.S. banking system, and similar actions could be warranted if smaller institutions suffered deposit runs that pose the risk of contagion.”

She argued that the existence of smaller banks was important.

“Large banks play an important role in our economy, but so do small- and mid-sized banks,” she said. “These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses. They also increase competition in the banking sector, and often have specialized knowledge and expertise in the communities they invest in.

“Large banks play an important role in our economy, but so does small and mid-sized banks,” she said. “These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses. They also increase competition in the banking sector and often have specialized knowledge and expertise in the communities they invest in. Indeed, many of these banks have played an important role in supporting our economic recovery in the depths of the pandemic.”

“The Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institution,” she said.

ABC News’ William Kim contributed to this report.

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(NEW YORK) — As fallout continues from the Silicon Valley Bank collapse — the second-biggest bank failure in U.S. history — people across the country are simultaneously feeling the impact of inflation in their pocketbooks.

The Federal Reserve will meet Wednesday to decide whether to raise or pause interest rates after continuously raising them over the past year in order to help curb inflation.

The Fed’s decision will have an impact on everything from individual credit card bills to the costs of everyday items to the banking crisis, experts say.

To help explain it all, ABC News chief economics correspondent Rebecca Jarvis and Good Morning America consumer correspondent Becky Worley answered viewers’ questions on topics including credit card payments, home buying and more.

1. What would a change in interest rates mean for people’s credit card payments?

Jarvis said that if the Fed decides to pause interest rates, as some experts predict will happen, it would have a “significant impact” on credit card payments.

“This will mean that some of those rates that have been climbing won’t climb as much in the near future,” Jarvis said, citing mortgage rates and higher interest rates on credit cards.

Jarvis added that even if the Fed takes a pause on raising interest rates this week, the rates could “still climb going forward.” Because of that, she said the most important step people should take is to continue paying off their credit card debt.

“If you have that credit card bill, you want to keep making those payments,” she said.

2. Is housing sitting on a bubble, like in 2007?

Jarvis said that fortunately today, we are in a “very different world” than the housing crisis of 2007, when interest rates went up and people were unable to repay their mortgage, leading to foreclosures and bankruptcies.

“First of all, the jobs market is as strong, historically, as it’s ever been,” Jarvis said. “Second of all … 85% of people who own homes have mortgages below 5%. What that means is if you were going to go out and buy a new house right now, you’d have to take out a far more expensive mortgage, so people don’t want to sell because they already have the best deal sitting in their own home.”

Jarvis said because people aren’t selling their homes, there is less inventory, which is leading to higher home prices.

“We don’t see the foreclosure we saw last time [in 2007], which is what makes this a much more sound market and housing,” she explained.

3. If I’m looking to buy a home, should I expect mortgage rates to improve?

According to Jarvis, one upside to the current banking crisis, combined with the potential for the Fed to pause interest rates, is that mortgage rates have decreased slightly, going from 7.15% to 7% over the past week.

“It’s tiny but that incremental difference can make a difference in what you pay,” Jarvis said.

When it comes to deciding whether or not now is the right time to buy a home, Jarvis said people should consider whether they will stay in the home for at least five years and whether they are staying within their budget with the purchase.

“Those are the most important questions that anyone should be asking if they’re thinking about buying a home, not just ‘Can I time this market properly?'” Jarvis said, adding that “renting is always an option, and there are great calculators at Bankrate.com and Realtor.com [to] check the whole thing out.”

4. Is now a good time to buy a car?

According to Worley, many people are paying the equivalent of a monthly mortgage or rent payment for their car.

The average car payment at the end of 2022 was $716 for a new car and $526 for a used car, according to Experian, a financial data analysis company.

Worley said that unfortunately for people either in the market for a car or who are currently making high car payments, it is now a “waiting game.”

“We’re waiting for those interest rates to stabilize or for them to go down,” she said.

Worley said one step people can take in the meantime, is to work on improving their credit score.

“If you have a higher credit score, you’ll get a lower interest rate when you can finally, hopefully, get into a lower rate and refinance or renegotiate,” Worley said. “But that’s really all we can do right now if you’re already locked into a high payment.”

5. Are cars still in short supply?

Yes, according to Worley.

“The supply chain is still a little bit messy,” Worley said. “And then dealers are, on many high-demand cars, putting a markup on top of the sticker price, and then you have high interest rates, so it is painful out there.”

Worley said her advice is to keep driving your current car for as long as you can, saying, “If you can eat 5,000 or 10,000 miles out of the old car, you should do it until those rates come down, if those rates come down.”

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(WASHINGTON) — Treasury Secretary Janet Yellen plans to say during a speech on Tuesday that “the situation is stabilizing and the U.S. banking system remains sound,” according to excerpts of her prepared remarks provided by the Treasury Department.

“The Fed facility and discount window lending are working as intended to provide liquidity to the banking system,” she plans to say during a speech at the American Bankers Association’s summit in Washington. “Aggregate deposit outflows from regional banks have stabilized.”

She also plans to argue that the existence of smaller banks was important.

“Large banks play an important role in our economy, but so do small- and mid-sized banks,” she plans to say. “These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses. They also increase competition in the banking sector, and often have specialized knowledge and expertise in the communities they invest in.”

“Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions,” she’ll say.

Copyright © 2023, ABC Audio. All rights reserved.

(NEW YORK) — The collapse of Silicon Valley Bank, the second-biggest bank failure in U.S. history, has thrust the financial system into distress, pulling attention away from a separate problem: sky-high inflation.

The twin economic challenges pose a dilemma for the Federal Reserve because its strongest tool, the benchmark interest rate, is a key cause of the financial emergency but the primary solution for high prices.

The central bank has aggressively raised interest rates over the past year, bringing inflation down significantly from a summer peak, though it remains more than triple the Fed’s target of 2%.

The rapid rise in interest rates, however, tanked the value of bonds held by Silicon Valley Bank, precipitating its failure.

A continuation of the rate hikes risks further intensifying the banking crisis, putting additional financial institutions at risk of collapse. However, a pause on rate increases could undermine the Federal Reserve’s fight against inflation, allowing high prices to persist and eat away at household budgets, economists said.

“It’s a very delicate balance,” Andrew Levin, an economics professor at Dartmouth College and a former Fed economist, told ABC News. “If we’re in a situation where the Fed can’t make sure prices are stable because it’s too worried about the stability of the banking system, that would be a very unfortunate situation.”

Still, the Fed could avoid facing a choice between the two objectives, since tighter lending practices taken up by private sector banks in response to the financial distress may cool the economy on its own accord, allowing the Fed to forego raising rates while still bringing down inflation, economists said.

“It does seem as though financial instability could take care of inflation anyway,” Julia Pollak, chief economist at Zip Recruiter, told ABC News.

Over the last year, the Federal Reserve raised its benchmark interest rate 4.5%, the fastest pace since the 1980s.

The Fed has put forward a string of borrowing cost increases as it tries to slash price hikes by slowing the economy and choking off demand. The approach, however, risks tipping the U.S. economy into a recession and putting millions out of work.

So far, however, the economy has proven fairly resilient, Levin said, citing the robust job market.

“If the economy continues to be strong, inflation might well stay far above the Fed’s target,” Levin said. “Interest rates may need to go substantially higher to bring inflation down.”

In early March, Fed Chair Jerome Powell told Congress that inflation “has a long way to go and is likely to be bumpy,” saying the central bank expects “ongoing increases” to its benchmark interest rate.

But persistent rate hikes also threaten the stability of the banking system.

The rapid spike in interest rates over the past year dropped the value of Silicon Valley Bank’s treasury bonds and mortgage bonds, punching a hole in its balance sheet and scaring away some depositors, who triggered a devastating 48-hour bank run.

While Silicon Valley Bank faced uniquely acute exposure, it’s hardly the only vulnerable bank.

At the end of last year, U.S. banks were sitting on $620 billion in unrealized losses, or holdings that have fallen in price but have yet to be sold, the Federal Deposit Insurance Corporation found.

Swiss banking giant UBS bought ailing rival Credit Suisse on Monday for $3.2 billion, as Swiss banking regulators helped put together a rescue.

The largest financial institutions in the U.S. took action on Friday in an effort to stabilize the financial sector, placing $30 billion in First Republic bank, one of the embattled regional lenders.

Bank of America, Citi, JPMorgan Chase, Wells Fargo and Goldman Sachs were among a slew of big banks that participated in the effort. The bank’s shares have continued to plummet, however, dropping 47% on Monday.

While troubling for many, such financial disarray is a possible outcome one can expect from rapid interest rate hikes, Pollak said. Rather than undermine the fight against inflation, the banking crisis is part and parcel of it, she added.

“Typically the Fed raises rates until something breaks,” Pollak said. “That break unleashes panic and brings tightening lending standards to banks.”

“The immediate effect of tighter credit is households buying fewer houses and businesses investing less, and that affects the demand for goods,” she added, bringing prices down. “That cycle perpetuates itself.”

In turn, some forecasters predict that the Fed will forego an additional rate hike at its meeting on Wednesday, citing the fragility of the financial system.

In a research note, Goldman Sachs told investors on Monday that it expects the Fed “to pause at its March meeting this week because of stress in the banking system.”

Levin, of Dartmouth, said he thinks the Fed should take that cautious approach on rates this week.

“It should try to reassure the market that it’s on top of this and monitoring carefully,” he said.

If the financial stress continues, prices could fall anyway, he added.

“People won’t go out and buy that refrigerator,” he said. “The upward pressure on inflation could subside really quickly.”

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