US Treasury Secretary Janet Yellen warned on Friday that it was “essential” for the committee charged with monitoring financial risks to be able to continue its work, as fears grow that the administration of President-elect Donald Trump will weaken the committee again.
Speaking at the Financial Stability Oversight Board meeting on Friday, the last of President Joe Biden’s administration, Yellen said that the committee’s staff in Trump’s first term has shrunk to single digits, and the infrastructure that supports coordination between agencies has been significantly reduced.
“This means we are less equipped to identify and respond to risks to the financial system,” she said, adding that the Democratic Biden administration has reinvested in the committee, which was established in the wake of the 2007-2009 crisis to monitor systemic risks.
“This strengthened Council has succeeded in achieving its goals, helping to make our financial system more resilient and our economy stronger,” she said in prepared remarks. “It is critical that it continues to do so for the benefit of the American people.”
Trump did not present a vision for financial regulators, but he pledged to reduce burdensome regulations.
Yellen’s comments came as the Financial Stability Oversight Council again warned in its annual report of potential risks posed by commercial real estate, private credit and cryptocurrencies, and called on regulators and companies to be vigilant in monitoring vulnerabilities.
While the 2024 report reflects the risks noted in previous reports, it warns that they have “evolved in ways with serious consequences.”
The group said there are signs that commercial real estate risks are increasing, especially in the office sector in major urban areas. Rising office vacancy, slower rental growth, and higher borrowing costs were putting pressure on borrowers, leading to higher default rates and higher provisioning expenses by banks.
Regarding cryptocurrencies, the group warned that stablecoins may pose a risk to financial stability, and reiterated its calls for legislation to be enacted to create a comprehensive regulatory framework for the digital currency product.
The group said that most cryptocurrency companies and other issuers are either violating existing financial rules or operating outside their borders, creating increased risks of “significant fraud and manipulation.” The group called for legislation to give federal regulators explicit authority to monitor spot cryptocurrency markets, similar to its 2023 recommendation.
The group also warned that while no major cybersecurity incident has occurred at a large financial institution to date, the issue remains top of mind for regulators and the industry with cyberattacks nearly doubling since the Covid-19 pandemic.
