This past year has been notable for the U.S. economy, marked by a decrease in inflation, low unemployment rates, and robust economic growth. These outcomes are attributed to efforts over the past four years focused on strengthening the resilience of the U.S. financial system, according to Treasury Secretary Janet L. Yellen.
Yellen highlighted the role of the Financial Stability Oversight Council (FSOC) in bolstering the financial system’s resilience. She emphasized ongoing progress in key areas such as the banking sector, technological changes, and the U.S. Treasury market.
The FSOC took decisive action in March 2023 to prevent regional banking stress from destabilizing the financial system and undermining economic recovery. The Council has since worked with regulators to address weaknesses revealed by these stresses, focusing on ensuring banks are prepared for liquidity stress and credit risk in commercial real estate.
Emerging risks from technological advancements like digital assets and artificial intelligence have also been addressed. Yellen called for legislation to create a federal prudential framework for stablecoin issuers and crypto assets. She stressed building interagency expertise to monitor potential systemic risks associated with AI while facilitating innovation.
Efforts have been made to strengthen cybersecurity through initiatives like Treasury’s Project Fortress, which involves over 1,000 financial institutions working together against cyber threats.
In terms of the U.S. Treasury market, progress includes increasing data availability and quality on market activity for transparency and evaluating leverage use that could impact liquidity. A new buyback program was launched to bolster liquidity as part of these efforts.
Yellen noted that strengthening FSOC has been crucial, as staff cuts had previously reduced its capacity to identify and respond to risks effectively. Investments were made in increasing staff and developing tools like an analytic framework for financial stability risks.
Yellen concluded by introducing Sandra Lee, Deputy Assistant Secretary for FSOC at Treasury, and Stefan Jacewitz from the Federal Reserve Bank of Kansas City, who presented the 2024 Annual Report.
