US markets had a sharp sell-off on Wednesday night despite the US Federal Reserve hiking interest rates by 25 basis points, in-line with market expectations.

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However, the sell-off was triggered by US Treasury Secretary Janet Yellen, who said that regulators are not looking to provide any "blanket" deposit insurance to stabilise the US banking system, without working with lawmakers. Yellen also said that the heads of recently failed American banks should also be held accountable.

Yellen's comments came after Fed Chair Jerome Powell said that all deposits and savings in the US are safe.

Also Read: US Fed Rate Hike Highlights: Jerome Powell hikes policy rate by 25 bps despite bank turmoil

“I have not considered or discussed anything having to do with blanket insurance or guarantees of deposits,” Yellen said Wednesday during a hearing before a Senate subcommittee, answering a question about whether the protections for all US deposits would require congressional approval. She didn’t clarify if that refers to a temporary or permanent change in the cap.

The market sold-off sharply post Yellen's comments to end at the day's low. The S&P 500 closed below the 4,000 mark yet again to end 1.6 percent lower. The Dow Jones shed over 500 points, while the Nasdaq also declined 1.6 percent.

Yellen has earlier said that the US is prepared to take further actions to protect depositors if smaller lenders are threatened. Her staff is studying ways to temporarily raise the federal insurance cap above $250,000 without Congressional approval in the event the crisis grows, Bloomberg News reported Monday.

Regional bank shares slumped, dragging down the broader market, after Yellen’s comments and as Powell said he’s prepared to keep raising rates until inflation shows signs of cooling.

However, Yellen hinted at having given further thought around raising the FDIC cap on a temporary basis. She assured Senator Joe Manchin that in the event the insurance is extended, it could be seen as a “special one-time assessment” where the cost was not a burden to customers with smaller deposits.

Also Read: Fed hikes interest rate by 25 bps to 5%, hints at 'some additional policy firming'

(With Inputs From Agencies.)

First Published:Mar 23, 2023 7:03 AM IST