WASHINGTON—Treasury Secretary Janet Yellen said on Monday the U.S. financial system was functioning in an “orderly manner” despite the current stock market sell-off, and valuations of some assets remain high compared to historical values.
In prepared testimony for a Senate Banking Committee hearing on Tuesday, Yellen said the Financial Stability Oversight Council (FSOC) will continue to monitor developments related to the war in Ukraine and continued struggles against the coronavirus pandemic.
“There is the potential for continued volatility and unevenness of global growth as countries continue to grapple with the pandemic,” Yellen said. “Russia’s unprovoked invasion of Ukraine has further increased economic uncertainty.”
Yellen said the FSOC’s annual report to Congress—the subject of Tuesday’s hearing—discusses other potential emerging financial threats and vulnerabilities that the multi-regulator council continues to monitor. These include short-term wholesale funding markets, central counter-parties, alternative reference rates, cyber security, corporate credit markets, and real estate markets.
Yellen said the FSOC report discusses vulnerabilities in the non-bank financial sector and the steps the FSOC has taken to examine these risks, including reestablishing an interagency Hedge Fund Working Group.
“The market turmoil in March 2020 demonstrated that the liquidity mismatch and the use of leverage by some nonbank financial institutions can make them vulnerable to acute financial stresses, and these stresses can be transmitted and amplified to the broader financial system,” she said.
The council is also drafting a report to identify financial stability and regulatory gaps related to digital assets, new products and financial technologies related to President Joe Biden’s March 9 executive order calling for a comprehensive approach to digital asset policies, Yellen said.