Uninsured Chinese depositors in the failed Silicon Valley Bank likely will be made whole through the special assessment on U.S. banks that is funding the rescue crafted by the Biden administration, Treasury Secretary Janet Yellen told lawmakers Thursday.

The government’s emergency intervention in SVB last week was criticized by several members of the Senate Finance Committee including Sen. James Lankford, Oklahoma Republican, who pressed Ms. Yellen on whether community banks in his state would be reimbursing Chinese citizens and companies that held accounts at the California bank.

Mr. Lankford cited public reporting that some Chinese investors in SVB have ties to the Chinese Communist Party.

“Will my banks in Oklahoma pay a special assessment to be able to make Chinese investors whole from Silicon Valley Bank?” he asked.

Ms. Yellen replied, “Uninsured investors will be made whole in that bank. I suppose that could include foreign depositors, but I don’t believe there’s any legal basis to discriminate among [the] uninsured.”

With evident sarcasm, Mr. Lankford noted the administration has promised that U.S. taxpayers won’t pay for the bank bailout.

“I’m sure my bankers are going to be very excited to know they are no longer paying taxes, and their banks no longer pay taxes,” he said. “All banks make their revenue off of rates and fees and such to their account holders, which means every Oklahoman will pay higher fees in their community banks.”

Ms. Yellen retorted, “if we had a collapse of the banking system and its economic consequences, that will have very severe effects on banks in Oklahoma that will also be threatened.”

She said it will be up to the Federal Deposit Insurance Corp. to determine which banks pay the special assessment to the federal Deposit Insurance Fund.

Regulators closed SVB last Friday after depositors tried to withdraw $42 billion in one day, fearing it was on shaky financial ground. The bank, which catered to high-tech firms and venture capitalists, was the 16th-largest in the U.S.

President Biden has said investors in SVB stock won’t get their money back, but people and companies who deposited their money with the bank will recover all of it.

Signature Bank in New York also was closed last week. Officials blamed similar problems that hit SVB, including the bank’s holding long-term debt that fell in value as the Federal Reserve raised interest rates eight times in the past year to curb high inflation.

SVB had $13.9 billion in foreign deposits, which weren’t subject to federal or state insurance protections, according to the bank’s annual report. The bank was popular with Chinese start-up firms and private-equity companies, and SVB had an office in Beijing to help facilitate business with Chinese customers.

Ms. Yellen testified Thursday that the nation’s banking system “remains sound” and that Americans shouldn’t worry about their deposits. She said the Treasury Department, the Federal Reserve and the FDIC had taken “decisive and forceful actions to strengthen public confidence” in the banking system.

“Americans can feel confident that their deposits will be there when they need them,” she said.

The administration worked out a deal last weekend to ensure that depositors would have access to their money beyond the normal insured limit of $250,000.

The Justice Department and the Securities and Exchange Commission are investigating the bank’s collapse.

Sen. Marsha Blackburn, Tennessee Republican, echoed Mr. Lankford’s concern about community banks paying for the rescue of SVB’s customers.

She asked Ms. Yellen to come up with an estimate of how much it will cost “if you end up insuring everybody’s deposit.”

“Do you see this as a step to nationalize the banking system?” the lawmaker asked Ms. Yellen.

“Absolutely not,” Ms. Yellen replied. “I see this as a step toward stemming contagion that could come from the failure of these banks that would place community banks across the country at great risk of runs.”

In a letter to Ms. Yellen, Sen. Marco Rubio, Florida Republican, urged her to prioritize the U.S. competition with China in handling payouts from the SVB intervention. He urged Treasury to ensure that adversarial regimes, as well as companies subject to their jurisdiction, won’t benefit from the bank’s collapse.

“As the Federal Deposit Insurance Corporation (FDIC) continues to work to effect an auction of SVB, I request that Treasury ensure that none of its assets end up in the hands of hostile, foreign adversaries,” Mr. Rubio wrote.

Critics have called the government’s rescue plan a bailout.

Republicans, including Sen. Michael Crapo of Idaho, pressed Ms. Yellen on whether the bank faced a cash crunch because its long-term debt lost value after the Fed’s series of interest rate hikes, intended to fight inflation.

Ms. Yellen agreed that the bank’s long-term investments “had lost market value” due to the rate increases. But she said deficit spending by the government was not one of the main causes of inflation.

Several senators in both parties asked why federal and state regulators didn’t catch SVB’s liquidity problems before it was too late.

Sen. Tim Scott, South Carolina Republican, criticized proposals to impose tighter regulations — “in other words, for banks that made responsible business decisions and have not failed.”

Sen. Mark Warner, Virginia Democrat, said policymakers should consider ways to prevent people on social media from causing a run on banks, calling the SVB collapse “history’s first Internet-driven run.”

Ms. Yellen replied, “This is really a threat to banks. There can be contagion in situations such as this, and other banks can then fall prey to the same kinds of runs, which we certainly want to avoid.”

Lawmakers also tangled with Ms. Yellen over the administration’s debt-ceiling showdown with House Republicans. She said Congress is risking an economic “catastrophe” if lawmakers fail to raise the nation’s borrowing limit by early this summer.

She criticized a House GOP plan to “prioritize” which bills get paid by the federal government.

“There is a reason that Treasury secretaries of both parties have rejected this incredibly risky and dangerous idea,” she said. “Prioritization … is default by another name. We need to pay our bills. It’s simply a recipe for economic and financial catastrophe.”

• Dave Boyer can be reached at dboyer@washingtontimes.com.