Treasury Secretary Yellen Highlights Economic Recovery and Addresses Financial Risks

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Treasury Secretary Janet Yellen highlighted the Biden administration’s economic achievements and ongoing financial stability efforts, focusing on banking, climate change, cybersecurity, artificial intelligence and digital assets in testimony before the House Financial Services Committee.

In testimony before the Financial Services Commission on February 6, 2024, US Treasury Secretary Janet L. Yellen provided a comprehensive update on the state of the US economy and the steps being taken to maintain financial stability. Secretary Yellen pointed to the historic recovery led by the Biden administration over the past three years, highlighting strong GDP growth, a significant reduction in inflation and a healthy labor market. She noted the increase in the prime-age labor force participation rate and the continuous unemployment rate below 4 percent, marking the longest streak in 50 years. Yellen also highlighted a significant increase in median household wealth, attributing it to the largest three-year gain in history.

The core of Yellen’s testimony was devoted to the stability of the US financial system, highlighting the role of the Financial Stability Oversight Council (FSOC) in monitoring a wide range 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 a wider spread of the banking system.

Yellen outlined five key areas of focus for FSOC, detailed in the 2023 annual report:

Banking sector and non-banking financial institutions: Efforts to revise capital measures, improve resolvability in large banks and address vulnerabilities from uninsured deposits. Risks posed by non-bank financial institutions, including liquidity and leverage mismatches, 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 risks to financial stability: Improving assessment and coordination efforts around climate-related risks, promoting disclosure to enable investors and financial institutions to consider these risks in their decisions.

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Cybersecurity risks: Strengthening defenses through information sharing and partnerships between state and federal agencies and the private sector.

Artificial Intelligence in Financial Services: Monitoring AI-related benefits and risks, including cyber and model risks, while fostering continuous expertise and monitoring capacity development.

Digital Assets: Addressing the risks of crypto-asset platforms and price volatility, advocating for the enforcement of applicable laws and regulations, and urging Congress to pass legislation regulating stablecoins and crypto-assets that are not classified as securities.

Secretary Yellen’s testimony reflects the administration’s commitment to sustaining economic growth while addressing the complexity of today’s financial risks. It underscores the importance of regulatory vigilance and legislative action in areas such as digital assets and climate change vital to the long-term health of the U.S. economy and financial system.

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