Treasury’s Yellen says US financial system operates in ‘orderly fashion’

WASHINGTON, May 9 (Reuters) – U.S. Treasury Secretary Janet Yellen said on Monday that the U.S. financial system was operating in an “orderly” fashion despite the current sell-off in stock markets and that valuations of some assets remained elevated relative to historical values.

In prepared testimony for a U.S. Senate Banking Committee hearing on Tuesday, Yellen said the Financial Stability Oversight Council (FSOC) would continue to monitor developments related to the war in Ukraine and the continued struggles against the pandemic. of coronavirus.

“There is potential for continued global growth volatility and inequality as countries continue to grapple with the pandemic,” Yellen said. “Russia’s unprovoked invasion of Ukraine has further heightened economic uncertainty.”

US stocks fell sharply again on Monday as the broad S&P 500 index (.SPX) extended its longest losing streak since mid-2011 and hit a one-year low as rising Treasury yields stoked market fears of aggressive monetary policy tightening.

Yellen said the FSOC’s annual report to Congress — the topic of Tuesday’s hearing — discusses other potential emerging financial threats and vulnerabilities that the multi-regulatory board continues to monitor. These include wholesale short-term funding markets, central counterparties, alternative benchmark rates, cybersecurity, corporate credit markets and real estate markets.

Yellen said the FSOC report discusses vulnerabilities in the non-banking financial sector and steps the FSOC has taken to address those risks, including re-establishing an interagency task force on hedge funds.

“The market turmoil in March 2020 demonstrated that inadequate liquidity and the use of leverage by some non-bank financial institutions can make them vulnerable to acute financial stress, and such stress can be transmitted and amplified to the entire financial system,” she said.

Yellen also said the report highlights FSOC’s work to assess climate-related financial risks and ensure that financial institutions better understand them. The council recommended that regulators build capacity and step up efforts to address climate risks, improve data availability and create improved and standardized disclosure rules.

The council is also writing a report to identify financial stability and regulatory gaps related to digital assets, new products and fintech related to President Joe Biden’s March 9 executive order calling for a comprehensive approach to digital asset policies, Yellen said.

Reporting by David Lawder Editing by Paul Simao

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Don F. Davis