U.S. Treasury Secretary Janet Yellen told lawmakers on Thursday that the U.S. banking system is "sound" — following government action taken over the weekend to protect depositors at two failed banks — and defended the president's budget.
"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," Ms. Yellen said in her opening statement before the Senate Finance Committee. "This week's actions demonstrate our resolute commitment to ensure that our financial system remains strong and that depositors' savings remain safe."
On Sunday, the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. seized Signature Bank, following a March 10 seizure of Silicon Valley Bank, in which they said all depositors will be protected, according to a joint statement.
When asked by Ranking Member Mike Crapo, R-Idaho, if SVB faced a liquidity risk issue, Ms. Yellen said the bank had to be closed because of "a massive withdrawal of deposits that led to liquidity problems," following a run on the bank's uninsured deposits.
Several committee members blamed regulators for the recent bank failures, including Sen. Tim Scott of South Carolina, who also serves as the top Republican on the Senate Banking Committee.
"I believe that the state and federal regulators failed to appropriately use the tools they have to supervise and regulate the failed institutions," Mr. Scott said.
Sen. James Lankford, R-Okla., asked whether deposits of any size, at any community bank are now fully insured and should expect the same treatment as SVB or Signature Bank. Ms. Yellen declared that the circumstances were extreme.
"A bank only gets that treatment if a majority of the FDIC board, a supermajority of the Fed board 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," she told Mr. Lankford.