Treasury Secretary Janet Yellen had until sunset on March 12 to devise a plan to calm the U.S. economy, working against the clock to stop a developing banking crisis.

She quickly turned to someone who had been through the fire before and on a much larger scale: Hank Paulson.

Paulson, who ran the Treasury Department during the financial crisis in 2008, counseled immediate government action. “It’s really hard to stop or even slow down a bank run. And to do that requires a powerful and quick government response,” Paulson said, recounting what he told Yellen.

A bank run on Silicon Valley Bank (SVB) had begun earlier in the week. Regulators took it over by that Friday afternoon. The move panicked shareholders and depositors, stirring stark reminders of earlier failures that triggered the Great Recession.

Perhaps no treasury secretary has come to the office with Yellen’s great resume, including service as the Federal Reserve (Fed) Chair and a lifetime of studying economics and finance. But, unfortunately, that experience was severely tested as she worked to assure multiple constituencies, including financial markets, balky Republicans in Congress, and President Joe Biden’s White House economic team.

Yellen spent that crucial period two weeks ago assembling Federal Reserve officials; regulators at the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC); lawmakers, including congressional leaders on banking – Sen. Sherrod Brown and Rep. Patrick McHenry; and Wall Street executives such as Jamie Dimon, the chief executive of JPMorgan & Chase Co.

But few could relate as well as Paulson, who had asked Congress for authority to buy up $700 billion in distressed mortgage-related assets from private firms to save the more extensive U.S. financial system.

His words to Yellen as she navigated the bank collapses: “We are fighting for the survival of our regional banks.”

The Fed defines regional banks as those with total assets between $10 billion to $100 billion, not as small as community banks and not as large as national ones. Regional and community banking organizations constitute the most significant number of banking institutions supervised by the Federal Reserve.

The crisis became apparent on March 8. Silicon Valley Bank’s chief executive officer, Greg Becker, had sent a letter to shareholders stating that the bank would need to raise $2.25 billion to shore up its finances after suffering significant losses.

The bank held an unusually high level of uninsured deposits, and many investments in long-term government bonds and mortgage-backed securities had tumbled in value as interest rates rose. That caused depositors on March 9 to rush to withdraw their funds en masse. It triggered a bank run.

The next afternoon, Yellen spoke with Fed Chair Jerome Powell, FDIC head Martin Gruenberg, acting head of the OCC Michael Hsu, and San Francisco Fed chair Mary Daly. Regulators rushed to place Silicon Valley Bank into FDIC receivership.

That weekend, staff from Treasury, the Fed and FDIC began the search for a potential buyer for the bank. Yellen and other federal officials met to ensure the bank could make payroll by Monday and that no taxpayer money would be used to fund the rescue. And do it all before Asian markets open for the week.

Yellen also had to assuage Republicans in Congress. She talked with McHenry and other lawmakers who wanted to know whether the actions would lead to more regulation.

McHenry did not respond to a request for comment from The Associated Press (AP) but said at an American Bankers Association event this past week that he supported the government’s decision to make depositors whole.

By Sunday evening, March 12, the Treasury, the Federal Reserve and FDIC sent a joint statement announcing that New York-based Signature Bank had also failed and was being seized. Officials also said that an emergency lending package would protect all Silicon Valley Bank and New York-based Signature Bank depositors.

In a matter of days, a third bank, First Republic, was fortified by $30 billion from 11 big banks to prevent more regional institutions from collapsing.

Yellen devised the idea of using bank funds to save the First Republic and raised it with Powell, Gruenberg and other regulators. Then she had a call with Dimon and broached the idea. After that call, Dimon reportedly said, “we have our marching orders,” and proceeded to build a coalition of banks, according to two people briefed on the matter, speaking anonymously because they were not authorized to discuss details of a private conversation.

This account of Yellen’s actions during that weekend is based on more than a dozen interviews.

A former Federal Reserve governor, Sarah Bloom Raskin, said Yellen and other policymakers will now have to determine “how two banks that many didn’t think would pose a systemic risk to the banking system” could so threaten the nation’s financial health.

A year ago, she withdrew her name as a Fed governor nominee after not receiving enough Senate support. She had previously served from 2010 to 2016 and took her oath of office at the same time as Yellen, a vice-chair.

Brown, who urged former President Barack Obama to nominate Yellen to succeed Ben Bernanke as Fed chair, said people “realize how competent she is and in how she’s charged with doing big things in the administration.”

Now, Yellen has to respond to accusations that the Biden administration is bailing out risky banks. Some Republicans have blamed Biden administration spending, which they say triggered 40-year high inflation, forcing the Fed to raise interest rates to tame prices, impacting banks and their investments.

Sen. Tim Scott said at an American Bankers Association event last week that “when you go to a 40-year high level of inflation, the truth of the matter when inflation is that high, you should immediately go into action, the Fed doesn’t have a scalpel, it has a hammer and it hurts.”

Biden has since called on Congress to strengthen the rules for banks to prevent future failures and to allow regulators to impose stricter penalties on the executives of failed banks, including clawing back compensation and making it easier to bar them from working in the industry.

Paulson said, “we’re really fortunate to have a smart, experienced treasury secretary,” describing Yellen as “one who reaches out to gets a range of opinions and talks to market participants on a real-time basis.”

But her test is not over.

She held a meeting Friday of the Financial Stability Oversight Council – the meeting had been called earlier in the week – and discussed, in part, the developments at Deutsche Bank, the German multinational investment bank whose stock was tumbling.