The US Treasury Department has released the transcript of Yellen’s speech today at the Economic Policy Conference organized by the National Association for Business Economics (NABE).
Referring to the importance of financial stability in her speech, Yellen said that the welfare of the country depends on the efforts to maintain financial stability before a crisis occurs.
Yellen said that they have made a lot of progress in the last 15 years, but recent events clearly show that their work is not done. We must also address risk areas,” he said.
Emphasizing that banks acted as an important source of power for the financial system during the panic in March 2020, when the Kovid-19 epidemic was intensely felt, Yellen reminded that large banks were better capitalized and more liquid than they were in 2007.
“Regulatory requirements have been relaxed in recent years”
Yellen stated that the Dodd-Frank Act, which came into effect in 2010, implemented significant reforms designed to enable these institutions to better absorb losses and meet customers’ demands for credit and cash.
Stating that the bankruptcy of two regional banks this month showed that their work was not over, Yellen continued:
“To be clear, the banking system is much stronger as it is heading towards the global financial crisis. This is perhaps best explained by the fact that we see relative stability in the banking sector overall this month, even as concerns about certain institutions rise. Yet whenever a bank goes bankrupt “This is a cause for serious concern. Regulatory requirements have been relaxed in recent years. I believe it is appropriate to assess the impact of these deregulation decisions and take appropriate action in response.”
“It is important that we re-examine whether our current supervisory and regulatory regimes are adequate for the risks banks face today,” Yellen said.
Regulation is costly, but the crisis is more costly
Pointing out that regulations impose costs on companies, Yellen noted that the cost of appropriate regulations is pale compared to the tragic costs of financial crises.
After the global financial crisis in 2008, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which brought tight control to banks with assets over $50 billion, was loosened in 2018 during the period of Former US President Donald Trump, and the threshold was raised to $250 billion.
The bankruptcies of Silicon Valley and Signature Bank brought the banking industry regulations back under the scrutiny.