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Treasury Secretary Janet L. Yellen told lawmakers on Tuesday that the U.S. has made a “historic” economic recovery from the pandemic, but to maintain the gains of the past three years, regulators are facing a series of looming risks to the financial sector. He plans to talk about the need to carefully protect the system. .
Yellen’s announcement comes nearly a year after the Biden administration and federal regulators took aggressive steps to stabilize the nation’s banking system following the sudden failures of Silicon Valley Bank and Signature Bank. I plan to make this comment during my testimony before the Services Committee.
Although the turmoil in the banking system has largely subsided, the Financial Stability Oversight Council, chaired by Yellen, is considering how to track and respond to risks to financial stability. Like other government agencies, the council did not anticipate or alert regulators to the problems that caused several local banks to fail.
“Our nation’s continued economic strength depends on a strong and resilient American financial system,” Yellen said in prepared remarks.
Last year’s bank failures were the result of a combination of events, including banks’ failure to adequately prepare for rapidly rising interest rates. As interest rates rose, Silicon Valley banks and others absorbed huge losses, causing panic among depositors as they scrambled to withdraw their funds. To prevent further runs on the banking system, regulators have imposed emergency measures to rein in Silicon Valley Bank and Signature Bank and ensure depositors do not lose their funds.
Bank failures and government bailouts have sparked debate about whether more steps are needed to ensure customer deposits are protected and whether banking regulators can adequately police risks.
Yellen is expected to be asked about what has been done over the past year to protect the financial system and preparations to deal with future threats. The International Monetary Fund said in a report last week that expectations of lower interest rates will increase demand for riskier financial assets, while some sectors such as commercial real estate continue to face the prospect of default due to falling office property values. He said that
The Treasury Secretary is expected to explain to MPs that the Financial Stability Oversight Council, which submitted its annual report to Congress late last year, has focused on banks’ ability to absorb losses, as well as improving the process of liquidating failed banks. It will be done. An increasingly interconnected financial system. He will point out that there are risks to other types of financial institutions as well, pointing to the Securities and Exchange Commission’s oversight of hedge funds and money market funds.
The Biden administration is also focused on long-term threats. Yellen says regulators remain focused on climate-related financial stability risks and urges them to move forward with disclosure rules that allow investors and lenders to consider climate change in decision-making. right. Cybersecurity and the emergence of artificial intelligence are also risks that regulators are focusing on.
“The Board is closely monitoring the increasing use of artificial intelligence in financial services,” Yellen said, noting that the potential cost savings of new technologies could come with new cybersecurity threats. added.
Despite these concerns, the Treasury secretary will offer an optimistic assessment of the U.S. economy, saying economic growth is strong while inflation has fallen significantly. She will say the labor market is healthy and point out that Americans’ household wealth has increased sharply since 2019.
“Families are now putting their additional income and accumulated savings back into the economy,” Yellen would say.
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