WASHINGTON — Treasury Secretary Janet Yellen sought to reassure markets and lawmakers on Thursday that the federal government is committed to protecting U.S. bank deposits following the failure of Silicon Valley Bank and Signature Bank over the weekend.

“Our banking system remains sound and Americans can feel confident that their deposits will be there when they need them,” Yellen said in testimony before the Senate Finance Committee.

Under questioning, however, Yellen admitted that not all depositors will be protected over the FDIC insurance limits of $250,000 per account as they did for customers of the two failed banks.

Yellen has been at the center of emergency federal efforts this past week to recover deposits for account holders at two failed banks, the California-based SVB and the crypto-heavy Signature Bank, based in New York.

A majority of SVB’s customers were small tech companies, venture capital firms and entrepreneurs who used the bank for day-to-day cash management to run their businesses. Those customers had $175 billion on deposit with tens of millions in individual accounts. That left SVB with one of the highest shares of uninsured deposits in the country when it collapsed, with 94% of its deposits landing above the FDIC’s $250,000 insurance limit, according to S&P Global Market Intelligence data from 2022.

U.S. bank regulators announced a plan Sunday to fully insure all deposits at the two failed banks, including those above the $250,000 limit covered by traditional FDIC insurance. The additional protection will be paid for out of a special fund made up of fees levied on all FDIC-insured institutions.

In addition, the Federal Reserve loosened its borrowing guidelines for banks seeking short-term funding through its so-called discount window. It also set up a separate unlimited facility to offer one-year loans under looser terms than usual to shore up troubled banks facing a surge in cash withdrawals. Both programs are being paid for through industry fees, not by taxpayers, the Biden administration has emphasized.

“This will help financial institutions meet the needs of all of their depositors,” Yellen said. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”

Democrats and Republicans in Congress have largely supported the emergency actions taken in the past week. But with markets recovering somewhat, lawmakers Thursday questioned Yellen about whether backstops for big banks will become a new norm, and what that could mean for community lenders.

“I’m concerned about the precedent of guaranteeing all deposits and the market expectation moving forward,” Sen. Mike Crapo, R-Idaho, the committee’s ranking member, said in his opening remarks.

Republican Sen. James Lankford of Oklahoma pressed Yellen about how widely the uninsured deposit backstops will apply across the banking industry.

“Will the deposits in every community bank in Oklahoma, regardless of their size, be fully insured now?” asked Lankford. “Will they get the same treatment that SVB just got, or Signature Bank just got?”

Yellen acknowledged they would not.

Uninsured deposits, she said, would only be covered in the event that a “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

Lankford said the impact of this standard would be that small banks would be less appealing to depositors with more than $250,000, the current FDIC insurance threshold.

“I’m concerned you’re … encouraging anyone who has a large deposit at 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.'”

“That’s certainly not something that we’re encouraging,” Yellen replied.

Members of Congress are currently weighing a number of legislative proposals intended to prevent the next Silicon Valley Bank-type failure.

One of these is an increase in the $250,000 FDIC insurance limit, which several senior Democratic lawmakers have called for in the wake of SVB’s collapse.

Following the 2008 financial crisis, Congress raised the FDIC limit from $100,000 to $250,000, and approved a plan under which big banks contribute more to the insurance fund than smaller lenders.

CNBC’s Jim Cramer on Thursday said the Federal Reserve no longer needs action to tame inflation — and it’s because of the banking crisis.

Cramer said 10 days ago that investors were expecting a possible 50-basis-point interest rate hike from the Fed based on Chairman Jerome Powell’s recent response to January inflation data and the strong labor market.

Powell warned that if inflation remained strong, he expected rates to go “higher than previously anticipated” and possibly faster than a quarter point at a time.

It seemed like a 50 basis point rate hike was coming until the collapse of Silicon Valley Bank, Cramer said.

The declines came despite Sunday’s news that the Federal Reserve created a new Bank Term Funding Program that will offer loans for up to a year to banks in return for high-quality collateral like Treasurys. The central bank also eased conditions at its discount window.

First Republic said Sunday it had received additional liquidity from the Federal Reserve and JPMorgan Chase. The bank said the move raises its unused liquidity to $70 billion, before any funding it could get from the new Fed facility.

“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” said founder Jim Herbert and CEO Mike Roffler in a statement.

Herbert also told CNBC’s Jim Cramer on Monday that the bank was operating as usual and was not seeing that many depositors leave.

Western Alliance said in a statement that it is seeing “moderate” outflows and that it had taken additional steps to strengthen its liquidity.

Meanwhile, the SPDR S&P Regional Banking ETF lost 12% on Monday following a 16% decline last week.

The slide for regional bank stocks on Monday comes after a rush of withdrawals from SVB Financial forced that bank to close. A key issue was SVB’s high percentage of uninsured deposits, as the majority of the bank’s customers were not guaranteed to get their money back before the regulatory moves over the weekend.

While SVB had an unusually high percentage of uninsured deposits, there are other midsized banks that could be at risk of large withdrawals.

“We believe regionals with less diversified and large uninsured deposit bases are at risk of deposit flight but not at the speed of SVB and they should have time to tap wholesale funding markets (such as FHLB) and raise cash levels. In a fragile environment like we are in, we believe banks should be cautious about the potential negative signaling effect of raising deposit rates to keep deposits,” Citi analyst Keith Horowitz said in a note to clients.

SVB was the largest U.S. bank failure since 2008, with $212 billion in assets. First Republic reported roughly $213 billion in assets as of Dec. 31, according to a securities filing.

While First Republic is not as concentrated in one industry as SVB was with technology, the bank does tend to cater to businesses and wealthy individuals who have large uninsured deposits.

“Unfortunately, one of the first consequences of SIVB’s collapse is probably that it will cause a flight of uninsured deposits from smaller, less diverse banks to larger, more diverse ones,” Oppenheimer analyst Chris Kotowski said in a note to clients.

Correction: The SPDR S&P Regional Banking ETF fell 16% last week. An earlier version misstated the percentage.

On Wednesday, Silicon Valley Bank was a well-capitalized institution seeking to raise some capital.

Within 48 hours, a panic induced by the very venture capital community that SVB had served and nurtured ended the bank’s 40-year-run.

Regulators shuttered SVB Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis and the second-largest ever. The company’s downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients.

Even now, as the dust begins to settle on the second bank wind-down announced this week, members of the VC community are lamenting the role that other investors played in SVB’s demise.

“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor of Restive Ventures, told CNBC. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”

The episode is the latest fallout from the Federal Reserve’s actions to stem inflation with its most aggressive rate hiking campaign in four decades. The ramifications could be far-reaching, with concerns that startups may be unable to pay employees in coming days, venture investors may struggle to raise funds, and an already-battered sector could face a deeper malaise.

The roots of SVB’s collapse stem from dislocations spurred by higher rates. As startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising, SVB found itself short on capital. It had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss, the bank said late Wednesday.

The sudden need for fresh capital, coming on the heels of the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals Thursday as VCs instructed their portfolio companies to move funds, according to people with knowledge of the matter. The concern: a bank run at SVB could pose an existential threat to startups who couldn’t tap their deposits.

SVB customers said they didn’t gain confidence after CEO Greg Becker urged them to “stay calm” in a call that began Thursday afternoon, and the stock’s collapse continued unabated, reaching 60% by the end of regular trading. Importantly, Becker couldn’t assure listeners that the capital raise would be the bank’s last, said a person on the call.

All told, customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing.

By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources, the regulator stated.

By Friday, as shares of SVB continued to sink, the bank ditched efforts to sell shares, CNBC’s David Faber reported. Instead, it was looking for a buyer, he reported. But the flight of deposits made the sale process harder, and that effort failed too, Faber said.

Friday evening, some SVB customers received emails assuring them that it was “business as usual” at the bank.

“I’m sure you’ve been hearing some buzz about SVB in the markets today so wanted to reach out to provide some context,” one SVB banker wrote to a client, according to a copy obtained by CNBC.

“It is business as usual at SVB,” the banker wrote. “Understandably there may be questions and I want to make myself available if you have any concerns.”

Falvey, a former SVB employee who launched his own fund in 2018, pointed to the highly interconnected nature of the tech investing community as a key reason for the bank’s sudden demise. Prominent funds including Union Square Ventures and Coatue Management blasted emails to their entire rosters of startups in recent days, instructing them to pull funds out of SVB on concerns of a bank run. Social media only heightened the panic, he noted.

“When you say, `Hey, get your deposits out, this thing is gonna fail,” that’s like yelling fire in a crowded theater,” Falvey said. “It’s a self-fulfilling prophecy.”

Falvey, who started his career at Wells Fargo and consulted for a bank that was seized during the financial crisis, said that his analysis of SVB’s mid-quarter update gave him confidence. The bank was well capitalized and could make all depositors whole, he said. He even counseled his portfolio companies to keep their funds at SVB as rumors swirled.

Now, thanks to the bank run that ended in SVB’s seizure, those who remained with SVB face an uncertain timeline for retrieving their money. While insured deposits are expected to be quickly available, the lion’s share of deposits held by SVB were uninsured, and its unclear when they will free up.

“The precipitous deposit withdrawal has caused the Bank to be incapable of paying its obligations as they come due,” the California financial regulator stated. “the bank is now insolvent.”