The U.S. banking system remains sound and Americans can feel confident that their deposits are safe, Treasury Secretary Janet Yellen said on Thursday, but she denied that emergency actions after two large bank failures mean that a blanket government guarantee now existed for all deposits.

In her first public remarks since the weekend’s emergency measures with other regulators to ensure no depositors at Silicon Valley Bank SIVB.O and Signature Bank SBNY.O suffered losses from those lenders’ collapse, Yellen was pressed during a hearing before the U.S. Senate Finance Committee if that meant all uninsured deposits were now guaranteed.

“A bank only gets that treatment,” she told U.S. Republican Senator James Lankford, if supermajorities of the boards of the Federal Reserve, the Federal Deposit Insurance Corp and “I, in consultation with the president, determine that the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

Her comment was the first explicit indication of regulators’ views about the limits of the weekend’s extraordinary guarantee that ensured that tens of billions in uninsured deposits at Silicon Valley and Signature were not lost.

Ahead of that exchange, Yellen had touted the “decisive and forceful” emergency measures taken on Sunday, saying they had helped restore depositors’ confidence and prevented a more wide-ranging run on banks.

“I can reassure the members of the committee that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them,” Yellen said.

“This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”

But it was clear that the FDIC insurance limit of $250,000 per depositor remained in place and that any future failure would need to pose risks similar to those seen at Silicon Valley and Signature.

In their cases, Yellen said, “the chances of contagion that other banks might be regarded as unsound and suffer runs, seemed extremely high, and the consequences would be very serious.”

More than $9.2 trillion of U.S. bank deposits were uninsured at the end of last year, accounting for more than 40% of all deposits, according to U.S. central bank data. Those uninsured deposits are not distributed evenly across the country, FDIC data shows.


The hearing, previously scheduled to discuss the Biden administration’s budget proposal, offered the first public accounting by a member of the band of bank overseers who organized the rescue following Silicon Valley’s failure last Friday. Signature was seized by regulators over the weekend.

Yellen said she first was made aware of SVB’s difficulties last Thursday, a day before regulators closed the bank.

The emergency measures stretched beyond the depositor backstop, including enhancements for banking sector liquidity anchored by the Fed. The actions have been greeted with both relief and astonishment in Congress, where Democrats control the Senate and Republicans hold the House of Representatives.

Several senators bemoaned the failure of regulators to recognize the vulnerabilities and demand changes before the banks collapsed suddenly.

“This administration has a great deal of responsibility for the bank failures that we had,” Republican Senator Charles Grassley told reporters outside the hearing, adding that regulators “weren’t on top of it” in California.

Republican Senator Tim Scott sought to blame the Biden administration’s spending policies for fueling inflation that led to SVB’s troubles as rapid Fed interest rate hikes eroded the value of its bond holdings – an assertion rejected by Yellen.

But the Treasury head said inflation still was the “number one economic problem” for the United States, and reducing it is President Joe Biden’s top priority, adding that the Fed needed to “do its part” in that effort.

Some Democrats blamed a Republican-authored 2018 law that reduced the threshold for “systemically important” banks that required enhanced supervision – a club that SVB would have been in under previous rules.


Yellen said Silicon Valley’s collapse was essentially an inability to meet depositor demands for their money after the Fed’s rate hikes over the last year undercut the value of the bond investments relied upon to fund the customer withdrawals. She also noted the high level of uninsured deposits at Silicon Valley as an aggravating factor.

“There was a liquidity risk in this situation,” Yellen told the committee. “There will be a careful look at what happened in the bank and what initiated this problem, but clearly, the downfall of the bank, the reason it had to be closed, was that it couldn’t meet depositors’ withdrawal requests.”

Her testimony focused on the safety of the U.S. banking system and did not include any references to the difficulties surrounding Credit Suisse, which saw its shares plunge on Wednesday before regulators pledged a $54 billion liquidity lifeline to the flagship Swiss lender.

Yellen said that regular stress testing for U.S. banks can help identify potential problems, but noted that supervisory stress tests now look for capital deficiencies, not liquidity problems.

“We’re very focused right now on stabilizing the banking system and shoring up confidence, and I think there will be plenty of time that will be appropriate to look at what happened, and consider whether or not regulatory or supervisory changes are necessary,” she said.

“But for now, I would like to see confidence restored in the soundness of American banks.”