US Treasury Sec. Yellen: Banking system is sound, even as it has come under pressure

US Treasury Secretary Janet Yellen will tell at National Business Economics Association on Thursday that recent development in the banking industry remains them the “urgent need” to complete unfinished post-crisis reforms. “The US banking system is sound”:

In prepared remarks, she called Congress to raise or suspend the debt limit and also spoke about stable-coin.

Key quotes from the speech:

"Financial stability is a public good. Government plays a fundamental role in the provision of financial stability, as the costs of systemic failure are externalized to the broader society."

“During the COVID pandemic and again this month, the proverbial fire department had to be called – in the form of interventions by the Fed, FDIC, and Treasury. These events remind us of the urgent need to complete unfinished business: to finalize post-crisis reforms, consider whether deregulation may have gone too far, and repair the cracks in the regulatory perimeter that the recent shocks have revealed.”

“Today, the U.S. banking system is sound, even as it has come under pressure. The new Fed facility and discount window lending are working as intended to help banks meet the needs of all of their depositors. The capital and liquidity positions of the overall system remain at strong levels.”

“Let me be clear: this month’s developments have been very different than those of the Global Financial Crisis. Back then, many financial institutions came under stress due to their holdings of subprime assets. We do not see that situation in the banking system today.”

“The strong actions we have taken ensure that Americans’ deposits are safe. And we would be prepared to take additional actions if warranted.”

“It's also important that we reexamine whether our current supervisory and regulatory regimes are adequate for the risks that banks face today. We must act to address these risks if necessary.”

“We’ve been focused on mitigating systemic risks from the use of leverage at hedge funds and similar funds. Hedge fund gross assets in 2021 reached almost $10 trillion, up more than 50 percent since 2016. Hedge funds playing bigger role in U.S. Treasury market.”

“Recommended that Congress enact legislation to establish a comprehensive prudential regulatory framework for stablecoin issuers. Such a framework would include consolidated federal supervision, requirements for how a coin could be backed, capital and liquidity requirements, and restrictions on affiliation with commercial companies.”

“We have existing consumer and investor protection standards in traditional financial markets. These same principles and protections should apply in markets for crypto-assets.”

“This catastrophe is preventable. Congress must raise or suspend the debt limit. It should do so without conditions – and without waiting until the last minute.”