Treasury Secretary Janet Yellen said that banking regulations need to be re-examined following the recent collapse of Silicon Valley Bank and Signature Bank.
Yellen called for more regulation of the "shadow bank" sector, which generally refers to financial institutions like money market funds and hedge funds.
Yellen suggested that the 2018 roll-back of bank capital requirements and stricter supervision for banks with less than $250B in assets should be reconsidered.
- The Trump-era decision scraped provisions in the 2010 Dodd-Frank, which was passed in response to the collapse of Lehman Brothers and the financial crisis of the late 2000s.
- Yellen asked whether the current regulatory regimes "are adequate for the risks that banks face today."
- While Yellen did not make specific policy recommendations, she said that the costs of complying with banking regulations "pale in comparison to the tragic costs of financial crises."
- She reiterated that Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) were prepared to intervene again to prevent bank failures.
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- Yellen also said that regulators are monitoring potential systemic risks posed by hedge funds and digital assets like stablecoins.
- Hedge funds, which had over $9.5T in gross assets in 2021, rely heavily on leverage to hedge their risks and increase returns on their trades.
- If an over-levered hedge fund faces a "margin call," it could be forced to conduct "fire sales" of assets in times of financial stress, which could adversely affect other financial institutions.
