Written by David Lowder
(Reuters) – U.S. Treasury Secretary Janet Yellen on Thursday called for continued efforts to ensure a resilient financial system, including pursuing prudent regulation and pushing back against calls for lower bank capital requirements.
In remarks at the Financial Markets Conference in New York, Yellen said that reforms introduced after the 2007-09 financial crisis have caused disruptions, including the COVID-19 pandemic and recent challenges for local banks. He said it helped him get through it.
“The work to build and maintain a resilient financial system is never over, but we can never claim victory,” Yellen said at a conference hosted by the New York Fed.
“A resilient financial system is essential to a strong economy,” he said, “and to strengthen our financial system, we advocate for thoughtful regulation, including in the face of challenges from those who argue for less policy and regulation.” There is a need,” he added.
Yellen said the Trump administration has worsened the government’s focus on financial stability, leaving the 10-year-old Financial Stability Oversight Council “significantly weakened” when it took office in 2021, with its headcount reduced to single digits. He also criticized the reduction in interagency coordination.
“Simply put, we lacked critical tools to identify and respond to risks to financial stability. “It means facing,” he said.
Yellen said she has worked to rebuild FSOC’s capabilities so the financial system can serve businesses and households and help them thrive.
This included a focus on safe and sound financial institutions, financial market utilities, centrally cleared counterparties, and investor and consumer protection.
Yellen said the framework allowed the Treasury Department to take steps to protect the banking system from epidemics in the spring of 2023 after the failures of Silicon Valley Bank and Signature Bank.
Michael Barr, the Federal Reserve’s head of banking supervision, said Thursday at the same event that banks should put aside concerns about stigma and use the central bank’s discount window liquidity facility when it makes sense. He said we should use tea.
Referring to the 2010 financial reform law, Yellen said, “There are some people in the country who strongly oppose Dodd-Frank, arguing that its regulations would stifle innovation and economic growth.” “I and many others have argued the opposite. Appropriate regulation is essential to support a resilient financial system that fuels innovation and growth.”
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Yellen said that while her warnings that Dodd-Frank would leave the U.S. banking sector uncompetitive did not materialize, the higher quality capital required by law meant banks needed more money during the pandemic. It has now become possible to extend loans to households and businesses that are in need.
Addressing weaknesses
He said the core weaknesses exposed by the 2023 banking stress still needed to be addressed.
“Banks with low deposit stability need more supervisory attention, and regulations that take into account unrealized losses on securities are also needed,” Yellen said.
“We also ensure that banks have diverse contingency funding sources, particularly in the (Federal Reserve) discount window, to ensure that they have borrowing capacity and that they can regularly test that capacity. We also need to make changes to better prepare for the future.”
(Reporting by David Lawder; Editing by Sam Holmes and Bill Berkrot)
