Treasury Secretary Janet Yellen says bank depositors can feel confident their money is safe. Yellen promised a thorough review of what went wrong at two regional banks that failed in the past week.

Transcript

MARY LOUISE KELLY, HOST:

Treasury Secretary Janet Yellen offered reassurance today that the U.S. banking system is sound despite two recent bank failures. Yellen's comments come after a nervous week for banks and their customers. This afternoon, nearly a dozen big banks teamed up to pump money into a troubled, smaller bank. Stocks rallied in the U.S. and in Europe, but questions remain about the actions the government took to shore up the banking system and how to prevent similar meltdowns in future. NPR's Scott Horsley is here to take on some of those questions. Hey, Scott.

SCOTT HORSLEY, BYLINE: Hi, Mary Louise.

KELLY: All right. So Janet Yellen was appearing before a Senate committee today. She got all kinds of questions about these bank failures. What did she say?

HORSLEY: She says the administration is committed to protecting bank customers. After Silicon Valley Bank in California and Signature Bank in New York collapsed, both the FDIC and the Federal Reserve took extraordinary steps to make sure the people and businesses who had money in those banks would not suffer losses and to limit the kind of financial ripple effects that might have put other banks at risk.

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JANET YELLEN: 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.

HORSLEY: The private sector also pitched in today. Eleven big banks said they would deposit $30 billion into First Republic Bank. That's a San Francisco-based bank that's been suffering some of the same pressures that brought down Silicon Valley Bank last week.

KELLY: Great. And what did Yellen say about that? There's been so much finger-pointing. Did we get any closer to figuring out who or what is to blame?

HORSLEY: Well, there's a lot of blame to go around, starting, of course, with the banks' managers, who made some rookie mistakes, extending to federal supervisors, who apparently failed to catch and correct those mistakes, and maybe members of Congress who watered down some of the measures designed to prevent this kind of problem after the great financial crisis. Ultimately, though, Yellen says Silicon Valley was brought down by a classic bank run. That's when too many depositors want to get their money out all at once. And Virginia Senator Mark Warner noted this bank run happened with extraordinary speed. Many of Silicon Valley Bank's depositors are part of that tightly knit tech industry in the Bay Area, and the minute news of Silicon Valley Bank's troubles started to light up on their cellphones, they switched to their banking apps and tried pulling out tens of billions of dollars.

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MARK WARNER: We've seen now the very first social media internet-based bank run. I don't - sure - what regulatory system anywhere, no matter how much capital, no matter how many stress tests, that would have protected any institution from a $42 billion bank run in a single day.

HORSLEY: Now, Yellen says Silicon Valley Bank was particularly vulnerable to that kind of run because so much of its deposits were uninsured. The whole purpose of deposit insurance is to discourage bank runs by letting customers know their money's safe. But the FDIC typically covers only $250,000 per account, and most of the money on deposit at Silicon Valley Bank was not covered.

KELLY: Right. Although in this case, the government made an exception - said it would guarantee all the deposits, including those way over a quarter of a million dollars. And I guess I wonder, do we understand yet what kind of precedent that will set? Like, if another bank fails, is the government going to jump in and cover big deposits?

HORSLEY: Yeah, that was one of the big questions today. Republican Senator James Lankford asked, you know, if a small bank in Oklahoma goes down, will its big customers get the same kind of protection? Yellen said, not necessarily, and that worries Lankford.

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JAMES LANKFORD: We have seen the mergers of banks over the past decade. I'm concerned you're about to accelerate that by encouraging anyone who has a large deposit in a community bank to say, we're not going to make you whole, but if you go to one of our preferred banks, we will make you whole.

HORSLEY: And that's the kind of perverse incentive policymakers will be wrestling with in the weeks to come.

KELLY: Thank you, Scott.

HORSLEY: You're welcome.

KELLY: NPR's Scott Horsley. Transcript provided by NPR, Copyright NPR.