Treasury Secretary Yellen Touts US Economic Recovery
Commentary by Steven Lofchie
Secretary of the Treasury Janet Yellen praised the banking sector for its role in America's economic recovery during her tenure.
Before the American Bankers Association, Ms. Yellen detailed how, in partnership with the banking industry, the administration delivered essential economic support, bolstered small businesses and made strides toward an inclusive financial system. She praised banks for their work during the COVID-19 pandemic, for supporting government efforts to contain potential "contagion" and sustaining liquidity during recent banking stress events. She affirmed the ongoing partnership with banks to secure a resilient, inclusive and stable financial future for the US.
Secretary Yellen also announced a new National Strategy for Financial Inclusion, designed to enhance access to affordable financial products, expand financial literacy and improve consumer protections, particularly for underserved communities. (See related article). She also touted the success of Treasury's small business program the State Small Business Credit Initiative and Treasury's support providing "unprecedented support to community development financial institutions ["CDFIs"] to help communities recover and invest for the long-term."
Secretary Yellin acknowledged ongoing challenges including banking sector vulnerabilities, a significant housing shortage and climate-related financial risks. She underscored the importance of preparing banks for liquidity stresses and cyber threats and emphasized Treasury's commitment to climate finance through net-zero financing principles. She also described Treasury's ongoing efforts to combat illicit finance, strengthen cybersecurity (through Project Fortress), strengthen enforcement (through SSBCI) and promote financial resilience in light of climate risks.
Commentary
The 2023 bank runs could be attributed in part to the bank regulators' failure to properly monitor banks exposure to interest rate risk and mismatches. (See, e.g. FDIC Finds Poor Management and Lack of Oversight Causes of Signature Bank Failure.) As frequently pointed out, this failure may have been in part the result of the excess amount of regulatory attention devoted to climate issues that are impossible to quantify and in any case not an imminent threat to the banking system. (See, House Financial Services Subcommittees Request Information on Regulators' Supervision of Failed Banks.)
It should also be noted that Treasury's actions to forestall further bank runs required an enormous outlay by the US government, which may be eventually paid through an FDIC "tax" on bank deposits. (See, e.g. U.S. Government Announces Uninsured SVB/Signature Depositors to Be Made Whole.)
In light of the above, one might reasonably give the regulators only limited credit for containing the contagion.