White House worried over Janet Yellen’s fumbling of US bank crisis: sources

Janet Yellen is once again on thin ice inside the Biden Administration over her bungling of the banking crisis that keeps roiling markets, The Post has learned.

The question is when will Sleepy Joe & Co. finally act? They need to put Yellen out of her misery and end ours by handing her job to someone who knows how to deal with the very real possibility of banks failing on a scale not seen since the 2008 financial crisis and a possible deep recession.

As we have reported, the political types in the White House — the people that craft messaging and give input on cabinet choices — have been increasingly wary of Yellen’s ability to do the job despite her expansive resume and years running the Fed, people with direct knowledge tell the Post.

They grew sour over her bungled response to inflation (recall how she said it was transitory as it was exploding). It’s why they floated possible replacements last year, including Commerce Secretary Gina Raimondo, and Brian Moynihan, the CEO of Bank of America. Both are seen as policy heavyweights. Unlike Yellen, they have real-world business experience (Yellen’s been in academia and government throughout her career).

Yet she survived that attempt to get her removed because her ultimate boss, the president, didn’t want to fire a woman in such a high-profile post, these people say. Sleepy Joe might not have much choice now given the growing severity of what she and the country are facing: The collapse of large regional banks Silicon Valley and Signature banks.

Treasury Secretary Janet Yellen
Treasury Secretary Janet Yellen testifying on Capitol Hill Thursday.

First Republic, with more than $200 billion in assets, is on the precipice. Credit Suisse nearly imploded and was forced to merge with its Swiss neighbor, UBS. On Friday, investors began freaking out about another European banking giant, Deutsche Bank and began predicting its failure.

Follow The Post’s coverage of Silicon Valley Bank’s collapse

Yellen’s response to this has been bewildering from a messaging standpoint. White House advisers are pointing to her multiple flip-flops on whether the government will back up all deposits in a failed bank — even those well past the FDIC insurance threshold of $250,000. I get it, she doesn’t want people to pull money out of regional banks at just the hint of weakness, but what she is saying lacks credulity. Will the federal government or the underfunded FDIC insurance fund really cover a deposit of more than a million dollars?

Another criticism: Her slow-walking the possible severity of weakness in the plumbing of banks as failures begin to pile up. She says the system is safe and secure, but it’s obviously not. Years of historical and super-low interest rates distort asset values and risk-taking, and banks can’t be immune from the consequences.

“On one hand they’re kind of stuck with her; it would be bad to get rid of a Treasury Secretary during a banking crisis,” said one of my sources, who works at a large DC-based think-tank and has heard the griping firsthand. “On the other hand, they know they don’t have anyone good to be their face in terms of a response.”

President Biden
President Biden didn’t want to fire a woman in such a high-profile post, sources say.
AFP via Getty Images

Yellen clearly has heard the criticism. On Friday, she called an emergency meeting of top bank regulators to discuss the expanding crisis. The agenda will likely include not just past bank collapses, but the impasse over First Republic’s fate – bankers are trying, so far in vain, to save the institution from being the latest domino to fall in the regional bank mess.

Then there’s the feared implosion of Deutsche Bank, which given its size, carries a significant systemic risk to the entire financial system, including big banks like JPMorgan and Bank of America that trade with the German behemoth.

I guess you can say Yellen’s sudden urgency is better late than never. But check your calendar: We’re going on week three of a fast-moving banking contagion that could spark a significant recession if banks collapse en masse and lending dries up, so whatever she’s doing is still far too late.

Even people inside the White House are waking up to that sad reality.

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