19 April 2024

Yellen Says Steady Monetary System Is Key to U.S. Financial Power

Treasury Secretary Janet L. Yellen will inform lawmakers on Tuesday that the USA 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 yr 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 in regards to the issues that felled a number of regional banks.

“Our continued financial power is dependent upon a strong and resilient U.S. monetary system,” Ms. Yellen mentioned in her prepared remarks.

Final yr’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 tug 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’d not lose their funds.

The financial institution failures — and the federal government’s rescue — prompted debate over whether or not extra wanted to be performed to make sure that buyer deposits have been protected and whether or not financial institution regulators have been capable of correctly police danger.

Ms. Yellen is anticipated to face questions on what has been performed within the final yr to safeguard the monetary system and to put out preparations for coping with future threats. The Worldwide Financial Fund said in a report last week that expectations for declining rates of interest had led to better demand for dangerous monetary belongings and that some sectors, resembling business actual property, continued to face the prospect of defaults due to declining workplace property values.

The Treasury secretary is anticipated to inform lawmakers that the Monetary Stability Oversight Council, which submitted its annual report to Congress late final yr, has been targeted on the flexibility of banks to soak up losses, together with enhancing the method of winding down failing banks in an more and more interconnected monetary system. She is going to be aware that different kinds of monetary establishments additionally pose dangers and plans to level out the Securities and Change 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 will permit traders and lenders to contemplate 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 rising use of synthetic intelligence in monetary providers,” Ms. Yellen will say, including that the potential price 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. financial system, saying financial progress is powerful whereas inflation has declined considerably. She is going to describe the labor market as wholesome and be aware that family wealth of Individuals has elevated sharply since 2019.

“Households at the moment are placing their further revenue and accrued financial savings again into the financial system,” Ms. Yellen will say.