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Yellen Must Explain How She Plans to Rein in Big Banks, Safeguard Financial System

Nov. 14, 2013

Yellen Must Explain How She Plans to Rein in Big Banks, Safeguard Financial System

Note: Today, the Senate Banking Committee will hold a hearing on the nomination of Janet Yellen to be chair of the Federal Reserve Board of Governors.

WASHINGTON, D.C. – In her nomination hearing, Janet Yellen will have to answer questions about how she will approach her new position, if she is confirmed, Public Citizen said today.

More than three years after the passage of The Dodd-Frank Wall Street Reform and Consumer Protection Act, the financial system remains susceptible to instability, and Yellen’s position as chair of the Federal Reserve could present a critical opportunity to reassert stability. The Federal Reserve can act in a variety of ways to rein in risky bank practices and make the financial system safer, and Yellen needs to be a strong leader to undertake these tasks, Public Citizen said.

“Janet Yellen has an opportunity to hit the reset button at the Fed and redirect the agency’s focus from essentially coddling Wall Street to passing strong rules that help prevent future crises and build a strong, stable financial system,” said Micah Hauptman, financial policy counsel for Public Citizen’s Congress Watch division.

Public Citizen encourages senators on the committee to ask probing questions of Yellen’s views on the following topics:

– requiring banks to bolster their equity capital buffers so that they are protected against loss;

– requiring banks to hold sufficient long-term unsecured debt at the holding company level so as to ensure that they can be liquidated and recapitalized, in the event of failure;

– reducing banks’ overreliance on short-term debt that poses a risk of runs during stress;

– closely scrutinizing the nature and scope of banks’ ownership of physical commodities, and restricting those activities where appropriate;

– working with other financial regulators to finalize a rule pursuant to section 956 of the Dodd-Frank Act, which restricts certain compensation schemes that lead to employees taking imprudent risk and exposing firms to harm;

– working with other financial regulators to put in place a strong Volcker Rule that protects banks and the financial system from inordinately risky trading activities; and

– making banks smaller, simpler and safer so that they are no longer “too big to fail.”

“Congress created the Federal Reserve 100 years ago to serve America, not the banks. Too often, the Fed seems to judge its success by the wealth of the industry it supervises, not the health of nation,” said Bart Naylor, financial policy advocate with Public Citizen’s Congress Watch division. “Ms. Yellen needs to express clarity in her views about protecting our financial system, and if confirmed, must retain new, independent experts to guide her as staff.”