Treasury Secretary Janet L. Yellen will inform lawmakers on Tuesday that the US has had a “historic” financial restoration from the pandemic however that regulators should vigilantly safeguard the monetary system from an array of looming dangers to protect the features of the final three years.
Ms. Yellen will ship the feedback in testimony to the Home Monetary Providers Committee practically a 12 months after the Biden administration and federal regulators took aggressive steps to stabilize the nation’s banking system following the abrupt failures of Silicon Valley Financial institution and Signature Financial institution.
Whereas turmoil within the banking system has largely subsided, the Monetary Stability Oversight Council, which is headed by Ms. Yellen, has been reviewing the way it tracks and responds to dangers to monetary stability. Like different authorities our bodies, the council didn’t anticipate or warn regulators concerning the issues that felled a number of regional banks.
“Our continued financial energy depends upon a strong and resilient U.S. monetary system,” Ms. Yellen mentioned in her ready remarks.
Final 12 months’s financial institution collapses stemmed from a confluence of occasions, together with a failure by banks to correctly put together for the fast rise in rates of interest. As rates of interest rose, Silicon Valley Financial institution and others absorbed enormous losses, making a panic amongst depositors who scrambled to drag out their cash. To stop a extra widespread run on the banking system, regulators took management of Silicon Valley Financial institution and Signature Financial institution and invoked emergency measures to guarantee depositors that they might not lose their funds.
The financial institution failures — and the federal government’s rescue — prompted debate over whether or not extra wanted to be executed to make sure that buyer deposits had been protected and whether or not financial institution regulators had been in a position to correctly police threat.
Ms. Yellen is predicted to face questions on what has been executed within the final 12 months to safeguard the monetary system and to put out preparations for coping with future threats. The Worldwide Financial Fund mentioned in a report final week that expectations for declining rates of interest had led to larger demand for dangerous monetary property and that some sectors, corresponding to business actual property, continued to face the prospect of defaults due to declining workplace property values.
The Treasury secretary is predicted to inform lawmakers that the Monetary Stability Oversight Council, which submitted its annual report back to Congress late final 12 months, has been targeted on the flexibility of banks to soak up losses, together with bettering the method of winding down failing banks in an more and more interconnected monetary system. She’s going to word that different kinds of economic establishments additionally pose dangers and plans to level out the Securities and Trade Fee’s scrutiny of hedge funds and cash market funds.
The Biden administration has additionally been targeted on longer-term threats. Ms. Yellen will say regulators are persevering with to focus on climate-related monetary stability dangers and name on them to press ahead with disclosure guidelines that might enable buyers and lenders to think about local weather change when making selections. Cybersecurity and the emergence of synthetic intelligence are additionally dangers on the radar of regulators.
“The council is intently monitoring the growing use of synthetic intelligence in monetary providers,” Ms. Yellen will say, including that the potential value discount advantages of the brand new expertise might include new cybersecurity threats.
Regardless of these considerations, the Treasury secretary will provide an upbeat evaluation of the U.S. economic system, saying financial progress is robust whereas inflation has declined considerably. She’s going to describe the labor market as wholesome and word that family wealth of People has elevated sharply since 2019.
“Households at the moment are placing their extra earnings and gathered financial savings again into the economic system,” Ms. Yellen will say.