Yellen tells economists there’s ‘unfinished business’ on financial rules

Treasury Secretary Janet Yellen on Thursday told economists that there is more work to be done to protect the stability of the financial system in the wake of the failures of two banks.

Yellen, in a speech before a meeting of the National Association for Business Economics, hailed progress made over the past 15 years on safeguarding financial stability but also suggested that stricter banking rules are necessary.

Her remarks came as the administration of President Joe Biden is calling on regulators to put in place new rules for big regional banks. The White House on Thursday proposed rules including reinstatement of liquidity requirements and enhanced liquidity stress testing for banks with between $100 billion and $250 billion in assets. That would undo a 2018 rollback of Dodd-Frank rules for small and midsize banks.

Now see: Biden calls for new rules for large regional banks

“Recent events show that, clearly, our work was not done. During the COVID pandemic and again this month, the proverbial fire department had to be called — in the form of interventions by the Fed, [Federal Deposit Insurance Corp.] and Treasury,” Yellen said. Regulators earlier this month protected all depositors at the failed Silicon Valley Bank and Signature Bank of New York.

Also read: The first wave of deposit outflows is nearly over. A second wave has already started, this strategist says.

“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. And we must also address new areas of risk,” Yellen said.

Thursday’s announcement from the White House is focused on items that can be accomplished under existing law and that don’t require congressional action, an official told reporters.

Another Biden proposal is to strengthen supervisory tools, including stress testing, to “make sure banks can withstand high interest rates and other stresses,” the White House said in a statement.

Biden also wants to see “living wills” required for large regional banks, along with annual supervisory capital stress tests and an expansion of long-term debt requirements for a broader range of banks.

“Any time a bank fails, it is a cause for serious concern,” Yellen said. “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.”

US stocks SPX,
rose on Thursday, booking back-to-back gains ahead of an inflation update from the government on Friday.

The SPDR S&P Regional Banking exchange-traded fund KRE,
meanwhile, was off about 2%.