Treasury Secretary Janet Yellen believes the U.S. financial system is in working order, but that Russia’s invasion of Ukraine and China’s Covid-19 lockdowns are making some goods more expensive. Yellen, testified before the Senate Banking Committee on Tuesday, said she and other top financial regulators wouldn’t be surprised to see market turbulence keep up into the summer.
The Following are excerpts from the written testimony provided by Yellen to the Senate Banking Committee:
“The report is a collaborative effort of the Councilmember agencies. It is a vehicle for providing Congress and the public with the Council’s collective assessments of potential risks to U.S. financial stability.”
“The market turmoil in March 2020 demonstrated that the liquidity mismatch and use of leverage by some nonbank financial institutions can make them vulnerable to acute financial stresses, and these stresses can be transmitted and amplified to the broader financial system.”
“The Council has taken steps to examine these risks, including re-establishing its Hedge Fund Working Group to develop an interagency risk-monitoring system and to propose options to mitigate identified risks.”
“The Council is also working to support improving the resilience of the Treasury market and is coordinating with the Interagency Working Group on Treasury Market Surveillance.”
“Potential steps to be taken include improving data quality and availability, evaluating expanded central clearing, and enhancing trading venue transparency and oversight. The SEC has proposed certain reforms to enhance transparency and oversight over alternative trading systems that trade government securities.”
“Additionally, the Council is working to ensure that financial institutions better understand their climate-related financial risks. To address these risks, the Council recommended that regulators build their capacity and expand their efforts to address climate-related risks, improve the availability of data, enhance and standardize disclosures, and assess and mitigate risks to financial stability.”
“With respect to digital assets, new products and technologies may present opportunities to promote innovation and increase efficiencies. However, digital assets may pose risks to the financial system, and increased and coordinated regulatory attention is necessary. The Council is drafting a report that will identify financial stability risks and regulatory gaps. I look forward to working with you on the issues and opportunities posed by digital assets.”
“Finally, there is the potential for continued volatility and unevenness of global growth as countries continue to grapple with the pandemic. Russia’s unprovoked invasion of Ukraine has further increased economic uncertainty.”
“The U.S. financial system has continued to function in an orderly manner, though valuations of some assets remain high compared with historical values. We stand firmly with the people of Ukraine and have implemented an unprecedented suite of sanctions on Russia that have been implemented by financial institutions.”
“Other potential emerging threats and vulnerabilities that the Council continues to monitor, including short-term wholesale funding markets, central counterparties, alternative reference rates, cybersecurity, corporate credit markets, and real estate markets.”
“The Council remains committed to its mission of identifying and responding to risks to U.S. financial stability, and I look forward to working with this Committee to promote a more robust and resilient financial system.”
With that, Yellen concluded her written statement which represents an optimistic perception of the current economic health, however more information will be provided today when the latest indicators of inflation are disclosed and the results of the decisions taken by the Fed are more tangible.
