(4 October 2024 – Global) US Treasury Secretary Janet Yellen has stressed the need for increased vigilance by regulators focusing on systemic risks posed by private credit and non-banks’ rapidly expanding share of lending.
The value of loans extended by non-banks now exceeds on-balance sheet bank credit Yellen warned the Federal Reserve Bank of New York’s US Treasury Market Conference.
To reduce bank run risk, the Securities and Exchange Commission (SEC) increased liquidity requirements for money market mutual funds however open-ended funds were still vulnerable. There are still gaps in regulation relating to stablecoins and digital assets more broadly, noting these asset classes could incite additional risks to stability.
“The Financial Stability Oversight Council was severely weakened during the Trump administration. The number of council staff was cut to single digits. The council’s analysis team at the Treasury, which monitors systemic risks, was eliminated. The infrastructure supporting interagency engagement and co-ordination was significantly scaled back. Put simply, we were without crucial tools to identify and help respond to risks to financial stability” Yellen lamented.
“The FSOC has updated its guidance on designating non-banks for Fed supervision. FSOC members have also increased their data collection and monitoring of highly leveraged hedge funds and private credit” Yellen added.