- Secretary of the Treasury Janet L. Yellen at the open session of the meeting of the Financial Stability Oversight Council
This past year, the US economy has been marked by a combination of developments that few thought possible.
Inflation is down significantly, the unemployment rate is near historic lows, and economic growth is robust. This is the result of actions we’ve taken over the past four years, including our administration’s focus on strengthening the resilience of the US financial system.
A resilient financial system is critical to a strong economy, and as the Financial Stability Oversight Council’s 2024 Annual Report shows, the Council has played a key role in increasing the resilience of the US financial system.
I’d like to speak to ongoing progress in three key areas, starting with the banking sector.
In March of 2023, we acted quickly and decisively to prevent contagion from regional banking stress that could have destabilized the US financial system and undermined our historic economic recovery. Since then, the Council has provided direction and helped lead coordination among regulators to address the core weaknesses the banking stresses revealed. As the annual report lays out, we need to continue work to ensure that banks are prepared for liquidity stress by making sure that they have diverse sources of contingency funding and the capacity to borrow at the discount window. And we have also remained focused on credit risk in commercial real estate. This risk became more evident this year, and regulators should continue to focus on the financial industry’s ability to address it.
We have also been addressing emerging risks from significant technological changes.
Digital assets and artificial intelligence bring potential benefits such as efficiencies, but also financial risks, cyber risks, and risks from third-party service providers. The council continues to call for legislation to create a comprehensive federal prudential framework for stablecoin issuers and for legislation on crypto assets that addresses the risks we have identified. We recommend building further interagency expertise to analyze and monitor potential systemic risks associated with the use of AI in the financial services sector while facilitating innovation.
Treasury’s report on AI-specific cybersecurity risks is one example of recent progress, equipping financial institutions with information on best practices. Efforts like Treasury’s Project Fortress, which brings more than 1,000 financial institutions together to combat cybersecurity risks, are also key.
Strengthening the resilience of the US Treasury market has continued to be a top priority, with the council playing an important coordinating role.
We’ve made progress, including on increasing the availability and quality of data on Treasury market and repo activity to advance transparency and on evaluating the use of leverage that could increase risks to Treasury market liquidity. Treasury also launched a new buyback program to bolster liquidity. This work must continue as we move forward to implement expanded central clearing of Treasury securities and to improve risk management.
Across these areas, progress has been enabled by a strengthened council. When I took office, the council’s staff at Treasury had been cut to single digits, and the infrastructure supporting interagency coordination had been scaled back significantly. This meant we were less equipped to identify and respond to risks to the financial system.
So we invested in the council increasing staff, creating more opportunities for agencies to come together, and developing new tools such as the analytic framework for financial stability risks, which we published last year. This strengthened council has delivered, helping make our financial system more resilient and our economy stronger. It is crucial that it continue to do so for the benefit of the American people.
