U.S. Secretary of the Treasury testifies before the Senate Appropriations Subcommittee on Financial Services March 22, 2023 in Washington, DC.
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WASHINGTON — The Treasury Department’s risk oversight arm on Friday proposed latest tools for spotting issues within the U.S. economic system, greater than a month after the collapse of Silicon Valley Bank and Signature Bank sparked efforts to forestall further damage to the economy.
The Financial Stability Oversight Council voted to approve a framework on financial stability for public feedback. The plan, which can offer Americans more transparency into the council’s operations and the way it identifies systemic problems, will likely be the primary such measure it has released.
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“This framework outlines common vulnerabilities and transmission channels through which shocks can propagate through the economic system. And it lays out how the Council considers the tools it should use to deal with these risks,” Treasury Secretary Janet Yellen said in pre-released remarks.
Yellen said that in trying to forestall problems within the economic system, the council doesn’t “broadly prioritize one kind of tool over one other.” It plans its response to a given risk following an examination, she said.
“The framework emphasizes the importance of taking a comprehensive and rigorous approach,” Yellen said. “Addressing the varied range of economic vulnerabilities that exist today – and that will arise tomorrow – requires a broad set of flexible tools.”
The Treasury Department, together with the Federal Deposit Insurance Corp., backstopped depositors as they feared ripple effects from the collapse of SVB and Signature Bank, which catered partly to digital currency exchanges. Federal regulators shuttered each banks last month, seized their deposits, sold each entities to other financial institutions and prevented the most important banking crisis since 2008.
The FSOC also voted to issue proposed guidance that will enable it to make use of congressional authority to designate nonbank financial firms for supervision under the Federal Reserve Board when essential.
Yellen has not identified what firms may very well be designated, only saying that overseeing more institutions “is a very important preventative tool to deal with systemic risks that will arise from a nonbank financial firm whose activities or distress could threaten the economic system.”
Rep. Maxine Waters, D-Calif., rating member of the House Financial Services committee, applauded the council’s move to designate non-banks for financial oversight, which she said was hampered by the Trump administration.
“Last month’s unexpected failure of SVB and Signature Bank and resulting bank crisis, function a stark reminder that FSOC and our regulators must remain vigilant and seek to quickly address vulnerabilities in our economic system directly,” Waters said.
Each proposals will likely be released for a 60-day comment period.
