Yellen: The US financial system is functioning in an “orderly fashion”, but some valuations “remain high”

(Kitco News) U.S. Treasury Secretary Janet Yellen spoke about the health of the U.S. financial system during testimony before the U.S. Senate Banking Committee, saying everything was working in an “orderly fashion,” but some valuations remain. high.

Risks facing economic stability include Russia’s invasion of Ukraine and China’s COVID lockdowns.

“There is potential for continued volatility and erraticity in global growth as countries continue to grapple with the pandemic. Russia’s unprovoked invasion of Ukraine has further heightened economic uncertainty,” he said. Yelen. “The U.S. financial system has continued to operate in an orderly fashion, although valuations for some assets remain high relative to historical values.”

The US Treasury Secretary added that the United States would continue to pressure Russia with sanctions and provide aid to Ukraine.

“We stand firmly with the people of Ukraine and have implemented an unprecedented series of sanctions against Russia which have been implemented by financial institutions. On February 28, I convened the Council following the invasion, and we will continue to monitor developments and coordinate actions as risks and threats evolve,” she noted.

Digital assets were also discussed during testimony, with Yellen calling for coordinated regulatory attention due to the risks posed by instruments such as stablecoins.

“Digital assets can pose risks to the financial system, and heightened and coordinated regulatory attention is needed,” she said. “The Council is writing a report that will identify financial stability risks and regulatory gaps. We also look forward to working with you to ensure that payment stablecoins and their arrangements are subject to a federal prudential framework on a consistent and comprehensive basis. .”

Yellen also commented on the risks of the UST stablecoin losing its dollar peg over the weekend. “I think it just illustrates that this is a rapidly growing product and there are risks to financial stability, and we need a proper framework,” she said.

Yellen noted that legislation dealing with crypto regulation would be “appropriate” this year. “Here we see risks that could threaten financial stability – risks associated with the payment system and its integrity and risks associated with increased concentration if stablecoins are issued by companies that already have substantial market power” , Yellen said. “We certainly see significant risks here.”

Other risks monitored include wholesale short-term funding markets, central counterparties, alternative benchmark rates, cybersecurity, corporate credit markets and real estate markets.

Yellen’s comments come as Wall Street sees a sell-off across the board, with the S&P hitting its lowest levels in more than a year this week.

The slump in equities was driven by a shift in market sentiment as US Treasury yields soared and the US dollar index nudged 20-year highs. The crypto space also suffered heavy losses in response to the stock sell-off.

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Don F. Davis