US to intervene in the market to counteract non-bank financial firms
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A close inspection showed that the collapse was caused by poor administration which prioritized short-term profits.
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Treasury Secretary Janet Yellen listens to a question during a news conference at the Treasury Department in Washington, Thursday, April 21, 2022 (AP)
Treasure Secretary Janet Yellen announced that the US will adopt increasingly interventionist policies to mitigate risks posed by non-bank financial firms.
"We are proposing revisions to certain elements of the Council’s [FSOC] existing guidance that have made it difficult to use its nonbank designation authority," Yellen said.
"The designation tool serves as an important part of our post-Global Financial Crisis defense. It is an important preventative tool to address systemic risks that may arise from a nonbank financial firm whose activities or distress could threaten the financial system. We are acting today to restore the effectiveness of this authority".
The collapse of SVB and Signature Bank, last month, shook the American market causing instability in the banking industry. A close inspection showed that the collapse was caused by poor administration which prioritized short-term profits.
Yellen stressed that the Financial Stability Oversight Council (which is staffed by prominent financial regulators including Yellen herself) needs to remove "inappropriate hurdles" to subject all non-bank financial firms to supervision.
"The March banking turmoil demonstrates that more work is needed to strengthen the regulatory and supervisory regimes," she added.
Yellen noted, however, that the banking system has eventually stabilized since the crisis last March.
Nevertheless, the FSOC needs to remain vigilant and closely monitor financial system conditions.
Read more: US Fed Vice Chair: Federal Reserve could overdo interest rate hikes
Back in March, a crisis of confidence was triggered by the collapses, with many customers withdrawing their money and depositing it in larger institutions, considered too big for the government not to bail them out if faced with failure. However, "aggregate deposit outflows from regional banks have stabilized" following authorities' moves to shore up confidence and stem contagion, Yellen noted.
Following SVB's collapse, the US Treasury, US Federal Reserve, and US Federal Deposit Insurance Corporation set out plans to ensure the bank's customers would be able to access their deposits. A similar exception was announced for Signature Bank.
The Fed additionally introduced a new lending tool for banks in an effort to prevent a repeat of SVB's quick demise and has since launched a drive with other major central banks to improve banks' access to liquidity.
