Treasury Secretary Janet Yellen speaks on the Council on Foreign Relations in New York City, U.S., October 17, 2024.
Andrew Kelly | Reuters
U.S. Treasury Secretary Janet Yellen on Friday urged the incoming Trump administration to chorus from interfering with what she referred to as critically necessary acceptable regulation of American banks’ capital ranges, liquidity and risk-taking.
Yellen, who has served as U.S. President Joe Biden’s Treasury secretary since he took workplace in January 2021, stated the present U.S. oversight system was not excellent, and it was official to search for methods to scale back its regulatory burden.
But she warned in opposition to taking radical steps that may intervene with wanted oversight or the present system of insuring banks’ deposits, given the lengthy historical past of financial institution failures triggering monetary crises.
“I do not need to say that precisely what we now have is totally sacrosanct and could not probably be touched. But I don’t suppose it is damaged. We’ve acquired a superb system,” Yellen informed Reuters as she prepares at hand off to Scott Bessent, President-elect Donald Trump’s nominee to be Treasury secretary.
Trump’s return to workplace has raised the prospect of radical adjustments to the federal authorities’s present construction and a regulatory framework put in place over many years to supervise monetary providers and banking, in addition to digital forex.
“Bankers all the time complain about over-regulation,” Yellen stated. “It’s official to search for areas the place the burdens of regulation exceed the advantages and to attempt to redress that. But acceptable regulation of capital, liquidity, danger taking and the like are critically necessary to a sound banking system and financial system, and that shouldn’t be interfered with.”
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Yellen stated she was troubled by a report that Trump’s transition crew was exploring methods to scale back, merge, and even remove the highest financial institution regulators in Washington, however had no particular perception into their plans.
“We’ve seen what occurs when banks are inappropriately supervised,” she stated, referencing the surprising failures of Silicon Valley Bank and Signature Bank in March 2023, and others earlier than them that had “created the opportunity of a contagious monetary disaster.”
“The classes we discovered from these 100-plus years of historical past is that banks must be supervised and controlled appropriately to tremendously mitigate the chances of failure; that deposit insurance coverage is a vital aspect in selling security and soundness and confidence within the system, and that there must be satisfactory entry to liquidity when banks get in bother,” she stated.
Financial stability
Yellen stated U.S. banks have been doing “exceptionally effectively” regardless of warnings that the Dodd-Frank laws handed after the 2008-2009 world monetary disaster would make it troublesome for them to compete.
The laws resulted within the creation of the Financial Stability Oversight Council, the Federal Reserve’s division of monetary stability, and the Treasury’s Office of Financial Research to anticipate and assess threats to monetary stability.
Yellen, who led the Fed from 2014 to 2018, agreed that the U.S. had a sophisticated system of banking regulation involving many businesses on the state and federal ranges. She stated there had been discussions over time about attainable consolidation strikes on the federal stage, and the Office of Thrift Supervision was eradicated after the worldwide monetary disaster with no opposed affect.
But she added that altering the construction of the system had not been on the prime of her agenda.
