Janet Yellen: Regulators May Have to Tighten Banking Rules in Wake of Crisis

Treasury Secretary Janet Yellen will say on Thursday that regulators may have to tighten banking rules in the wake of the banking crisis.

The Wall Street Journal (WSJ) obtained prepared remarks Yellen will deliver at the National Association for Business Economics, which will present her with an award in memory of former Federal Reserve Chairman Paul Volker, who was famous for cracking down on inflation. Yellen served as a Federal Reserve chair and other top posts at the nation’s central bank.

Yellen will use her remarks to implement more banking regulations that began in the wake of the 2008 financial crisis.

“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,” Yellen will say.

U.S. Secretary of the Treasury Janet Yellen speaks during a hearing before the House Appropriations Committee in the Rayburn House Office Building on Capitol Hill March 29, 2023 in Washington, DC. (Nathan Howard/Getty Images)

The Journal noted some former regulators have said that D.C. regulators have been too focused on America’s largest banks after the 2008 financial crisis, potentially ignoring possible issues with small and medium-sized banks. In 2018, under then-President Donald Trump, Congress passed a bill to roll back regulations that were viewed as too onerous for community banks.

The Fed is now reconsidering rules for medium-sized banks, or those with assets between $100 and $250 billion. The Biden White House will likely issue recommendations for rules to increase scrutiny over medium-sized banks.

“Regulatory requirements have been loosened in recent years. I believe it is appropriate to assess the impact of these deregulatory decisions and take any necessary actions in response,” Yellen will say.

“In large part, this was due to the post-crisis reforms we put in place. But in both cases, the government had to deliver substantial interventions to ease the pressure on certain parts of the financial system. This means that more work must be done,” she will say.

Yellen said the Financial Stability Oversight Council (FSOC), an interagency group created under Dodd-Frank reforms, will change its rules to subject institutions such as money-market funds to more supervision.

Yellen will argue that money-market funds, hedge funds, and stablecoins, or digital assets pegged to the value of a fiat currency such as the United States dollar, could present instability risks.

Yellen’s remarks will also call on Congress to pass legislation to regulate stablecoin issuers more like banks.