On Tuesday, February 6 at 9:00 a.m. Central, the House Financial Services Committee presents the hearing “The Annual Report of the Financial Stability Oversight Council,” with a spotlight on Janet Yellen, Chairperson of the Financial Stability Oversight Council (FSOC).
Yellen will also appear before the Senate Banking Committee later in the week, on Thursday, February 8 at 8:00 a.m. Central when she will also testify at a hearing titled, “The Financial Stability Oversight Council Annual Report to Congress.”
Subtitle A of the Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act established the FSOC. Section 112(c) requires the appearance and testimony by the Council Chairperson before Congress at an annual hearing, after the FSOC submits an annual report, where they are required to discuss:
- The efforts, activities, objectives, and plans of the Council; and
- Answer questions concerning their annual report.
On December 14, 2023, the Council unanimously approved and released its 2023 report. According to the U.S. Department of the Treasury’s press release associated with the 2023 report:
“The annual report reviews financial market developments, describes potential emerging threats to U.S. financial stability, identifies vulnerabilities in the financial system, and makes recommendations to mitigate those threats and vulnerabilities. Overall, the Council finds that the U.S. financial system remains resilient, and the U.S. banking system remains sound.”
Recommendations made by the FSOC in its 2023 annual report spanned a number of financial topics, including:
- Banking: The FSOC supports member agencies’ plans to review whether capital measures appropriately reflect an institution’s ability to absorb losses, as well as agencies’ proposed measures to improve resolvability at large, complex, or interconnected banks, such as by requiring long-term debt and improved resolution plans. In addition, the FSOC recommends that banking agencies closely monitor uninsured deposit levels and depositor composition and collect additional data as necessary.
- Cybersecurity: Cybersecurity risk is pervasive throughout the economy, and reducing cyber vulnerability is particularly critical within the financial system. The FSOC supports ongoing partnerships between state and federal agencies and private firms and recommends they continue to promote information sharing related to cyber risk and undertake additional work to mitigate cyber-related financial stability risks. The Council also supports the G7 Cyber Expert Group’s international efforts to help financial institutions better understand cybersecurity risks and improve the cyber resilience of the financial system.
- Artificial Intelligence (AI): For the first time, the FSOC has identified the use of AI in financial services as a vulnerability in the financial system. The FSOC notes that existing requirements and guidance may apply to AI and recommends monitoring the rapid developments in AI to ensure that oversight structures account for emerging risks to the financial system while also facilitating efficiency and innovation. The Council recommends financial institutions, market participants, and regulatory and supervisory authorities deepen expertise and capacity to monitor AI innovation and usage and identify emerging risks.
- Nonbank Financial Intermediation: The evolving participation of nonbank financial institutions in the provision of financial services is an important area to monitor for vulnerabilities and potential risks to the broader financial system. The FSOC’s 2023 annual report discusses the activities of nonbank mortgage servicers and the rise in private credit in contributing to financial system vulnerabilities. The Council also supports the initiatives undertaken by the Securities and Exchange Commission (SEC) and other agencies to address risks presented by a variety of investment funds, including the use of leverage by certain hedge funds and the liquidity and maturity transformation that money market funds and open-end funds engage in.
- Climate-Related Financial Risk: The FSOC and its member agencies have significantly increased their capacity to evaluate and address climate-related financial risks. The Council’s Climate-related Financial Risk Committee (CFRC) is developing a framework to identify and assess these risks, and the Council recommends enhanced coordination of data and risk assessment through the CFRC. The Council also recommends state and federal agencies continue to coordinate to identify, prioritize, and procure data necessary for monitoring climate-related financial risks.
- Digital Assets: The FSOC notes that financial stability vulnerabilities may arise from crypto-asset price volatility, the market’s high use of leverage, the level of interconnectedness within the industry, operational risks, and the risk of runs on crypto-asset platforms and stablecoins. Vulnerabilities may also arise from token ownership concentration, cybersecurity risks, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations. The Council emphasizes the importance of agencies’ continuing to enforce existing rules and regulations applicable to the crypto-asset ecosystem.
On January 26, 2021, Janet Yellen was sworn in as the 78th Secretary of the Treasury of the United States. An economist by training, she took office after almost 50 years in academia and public service. She is the first person in American history to have led the White House Council of Economic Advisors, the Federal Reserve, and the Treasury Department.
In 1967, Secretary Yellen graduated from Brown University and went on to earn her Ph.D. at Yale. She was an Assistant Professor at Harvard until 1976 when she began working at the Federal Reserve Board. There, in the Fed’s cafeteria, she met fellow economist, George Akerlof. Janet and George would marry later that year. They would go on to have a son, Robert, now also an Economics Professor.
In 1980, Secretary Yellen joined the faculty of the University of California at Berkeley, where she became the Eugene E. and Catherine M. Trefethen Professor of Business and Professor of Economics. She is Professor Emeritus at the university.
Secretary Yellen’s scholarship has focused on a range of issues pertaining to labor and macroeconomics. Her work on “efficiency wages” with her husband George, who studied why firms often choose to pay more than the minimum needed to hire employees. These businesses, they found, are often making a wise decision. Firms that offer better pay and working conditions tend to be rewarded with higher morale, reduced turnover, and greater productivity.
In 1994, President Bill Clinton appointed then-Dr. Yellen to the Federal Reserve Board of Governors. Three years later, he named her Chair of the White House Council of Economic Advisers.
In 2004, Secretary Yellen began her third tenure at the Federal Reserve, this time as President of the Federal Reserve Bank of San Francisco. From that post, she spotted a worrying economic trend–a bubble in home values. When the housing bubble popped in 2008, Secretary Yellen helped manage the resulting financial crisis and recession. In 2010, President Barack Obama, appointed her Vice Chair of the Federal Reserve, before nominating her to succeed Fed Chair Benjamin Bernanke as the nation’s top central banker. Secretary Yellen would serve as Chair of the Federal Reserve from 2014 until 2018.
On December 1, 2020, then-President-Elect Biden nominated Dr. Janet Yellen to the post of Treasury Secretary. “She has spent her career focused on unemployment and the dignity of work,” President Joe Biden said. “She understands what it means to people and their communities when they have good, decent jobs.”
Prior to serving at the Treasury Department, Secretary Yellen was a Distinguished Fellow in Residence with the Economic Studies Program at the Brookings Institution. During 2020-2021 she served as President of the American Economic Association. She is a member of the American Academy of Arts and Sciences and the Council on Foreign Relations. She was also a founding member of the Climate Leadership Council.
Secretary Yellen has served on the advisory boards of the Bloomberg New Economic Forum, the Committee for a Responsible Federal Budget and Fix the Debt Coalition (CRFB), and the Washington Center for Equitable Growth Steering Committee. She was elected to the Yale Corporation as an alumni fellow in 2000, serving until 2006.
Dr. Yellen has received honorary doctorates from Bard College, Brown, the London School of Economics, NYU, the University of Baltimore, the University of Michigan, the University of Warwick, and Yale from which she also received the Wilbur Cross Medal for distinguished achievements in scholarship, teaching, academic administration, and public service.
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Here’s what else is happening in The Week Ahead:
- Fannie Mae’s Refinance Application-Level Index (RALI) (Tuesday)
- NYU Furman Center Policy Breakfast: Fair Housing and the ‘City of Yes for Housing Opportunity’ (Wednesday)
- MBA Weekly Applications Survey (Wednesday)
- Realtor.com Weekly Housing Market Recap (Wednesday)
- Senate Banking Committee Hearing: The Financial Stability Oversight Council Annual Report to Congress (Thursday)
- National Association of Realtors (NAR) Fourth Quarter Metro Home Prices (Thursday)
- Freddie Mac Primary Mortgage Market Survey (Thursday)
- U.S. Department of Labor’s Unemployment Insurance Weekly Claims Report (Thursday)
