Treasury Secretary Janet Yellen highlighted Biden Administration’s economic achievements and ongoing financial stability efforts, focusing on banking, climate change, cybersecurity, AI, and digital assets in a testimony to the House Committee on Financial Services.
In her testimony before the Committee on Financial Services on February 6, 2024, U.S. Treasury Secretary Janet L. Yellen provided a comprehensive update on the state of the U.S. economy and the steps being taken to maintain financial stability. Secretary Yellen pointed to the historic recovery driven by the Biden Administration over the past three years, highlighting strong GDP growth, significant inflation reduction, and a healthy labor market. She noted the increase in the prime-age labor force participation rate and a continuous sub-4 percent unemployment rate, marking the longest streak in 50 years. Additionally, Yellen underscored a substantial increase in household median wealth, attributing it to the largest three-year gain on record.
The core of Yellen’s testimony was dedicated to the resilience of the U.S. financial system, emphasizing the role of the Financial Stability Oversight Council (FSOC) in monitoring a broad spectrum of risks. These include challenges from the real estate sectors, geopolitical conflicts, technological developments, and the specific response to the failure of two regional banks in March 2023 to prevent wider banking system contagion.
Yellen outlined five key areas of focus for the FSOC, detailed in its 2023 annual report:
Banking Sector and Nonbank Financial Institutions: Efforts to review capital measures, improve resolvability at large banks, and address vulnerabilities from uninsured deposits. The risks posed by nonbank financial institutions, including liquidity mismatch and leverage, are also under scrutiny, with the Securities and Exchange Commission taking steps to address these issues in hedge funds and other investment funds.
Climate-Related Financial Stability Risks: Enhancing assessment efforts and coordination around climate-related risks, promoting disclosures to enable investors and financial institutions to factor these risks into their decisions.
Cybersecurity Risks: Bolstering protections through information sharing and partnerships between state and federal agencies and the private sector.
Artificial Intelligence in Financial Services: Monitoring the benefits and risks associated with AI, including cyber and model risks, while encouraging continued expertise and monitoring capacity development.
Digital Assets: Addressing risks from crypto-asset platforms and price volatility, advocating for enforcement of applicable laws and regulations, and calling on Congress to pass legislation regulating stablecoins and crypto-assets not classified as securities.
Secretary Yellen’s testimony reflects the administration’s commitment to sustaining economic growth while navigating the complexities of modern financial risks. It underscores the importance of regulatory vigilance and legislative action in areas like digital assets and climate change, vital for the long-term health of the U.S. economy and financial system.
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