Yellen warns Trump's future team against interfering in banking supervision!
US Treasury Secretary Janet Yellen on Friday urged the incoming Trump administration to refrain from interfering with what she called the critically important appropriate regulation of US banks' capital levels, liquidity and risk-taking.
Yellen, who has served as US President Joe Biden's Treasury secretary since he took office in January 2021, said the current US supervisory system was not perfect and that it was legitimate to look for ways to reduce its regulatory burden. .
But she cautioned against taking radical steps that would interfere with necessary supervision or the current deposit insurance system of banks, given the long history of bank failures causing financial crises.
"I don't want to say that exactly what we have is completely sacred and cannot be touched. But I don't think it's broken. We have a good system," Yellen told Reuters as she prepared to hand over to Scott Bessent, President-elect Donald Trump's nominee to be Treasury secretary.
Trump's return to office has raised the possibility of sweeping changes to the current structure of the federal government and a regulatory framework established over decades to oversee financial services and banking, as well as digital currency.
"Bankers always complain about overregulation," Yellen said. "It is legitimate to look for areas where the burdens of regulation outweigh the benefits and try to correct that. But proper regulation of capital, liquidity, risk-taking and the like are extremely important to a sound banking system and economy, and this should not be interfered with."
Countries negotiating a global treaty to curb plastic pollution failed to reach an agreement on Monday. Yellen said she was concerned by a report that Trump's transition team was exploring ways to reduce, merge or even eliminate key bank regulators in Washington, but had no specific insight into their plans.
"We've seen what happens when banks are inappropriately supervised," she said, referring to the sudden failures of Silicon Valley Bank and Signature Bank in March 2023, and others before them that had "created the possibility of a financial crisis adhesive".
“The lessons we learned from those over 100 years of history are that banks must be appropriately supervised and regulated to greatly mitigate the chances of failure; that deposit insurance is a critical element in promoting safety and soundness and confidence in the system and that there must be adequate access to liquidity when banks are in trouble,” she said.
Yellen said US banks were doing "extremely well" despite warnings that the Dodd-Frank legislation passed after the 2008-2009 global financial crisis would make it difficult for them to compete. The legislation resulted in the creation of the Financial Stability Oversight Council, the financial stability division of the Federal Reserve, and the Treasury's Office of Financial Research to predict and assess threats to financial stability.
Yellen, who chaired the Fed from 2014 to 2018, agreed that the US had a complicated system of banking regulation involving many agencies at the state and federal level. She said there had been discussions over the years about possible consolidation moves at the federal level, and the Office of the Thrift Supervisor was eliminated after the global financial crisis with no negative impact. But she added that changing the structure of the system had not been at the top of her agenda.
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