Janet Yellen wants stricter rules for nonbanks after Silicon Valley failure

A key financial oversight council chaired by Treasury Secretary Janet Yellen is aiming to tighten rules on risk assessment and for nonbank companies after the high-profile Silicon Valley Bank and Signature Bank failures last month.

The Financial Stability Oversight Council is taking up two proposals: A framework for identifying and responding to financial stability risks, and new guidance for designating nonbank financial companies for regulatory supervision. 

“Last month’s events show us that our work is not yet done. The authority for emergency interventions is critical. But equally as important is a supervisory and regulatory regime that can help prevent financial disruptions from starting and spreading in the first place,” Yellen said in prepared remarks.

The Silicon Valley Bank collapse sent shockwaves through the tech industry last month. Circle, for example, held $3.3 billion of its USDC stablecoin reserves at Silicon Valley Bank, which was closed by regulators amid a bank run. 

Shortly after, New York regulators closed the crypto-friendly Signature Bank. Former Rep. Barney Frank, who sits on Signature’s board, claimed that regulators targeted the bank over its ties to crypto. Regulators dispute Frank’s claim.

Janet Yellen, Elizabeth Warren knock Trump-era rules

Existing guidance for non-bank financial institutions that was issued during the Trump administration “created inappropriate hurdles as part of the designation process,” Yellen said, adding that the process can take six years to complete. 

“That is an unrealistic timeline that could prevent the council from acting to address an emerging risk to financial stability before it’s too late,” Yellen said.

The council will discuss the proposals and vote on whether to issue them for public comment today, Yellen said. FSOC voting members include Federal Reserve Chair Jerome Powell and Securities and Exchange Commission Chair Gary Gensler. 

Sen. Elizabeth Warren, D-Mass., cheered the council’s new guidance for designating nonbank financial companies for regulatory supervision. 

“We saw in the 2008 crisis how financial institutions that aren’t banks – including insurance companies, mortgage issuers, and hedge funds – can be big enough and risky enough to crash our whole economy,” Warren said in a statement. “The Trump administration put us all in danger by significantly weakening financial regulators’ oversight of these giant corporations, and now FSOC should follow through by using this tool to ensure the stability of our financial system.” 

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