Yellen says banking system better off, less likely to torpedo U.S. economy

Federal Reserve Chair Janet Yellen testifies before the House Financial Service Committee on Wednesday as she delivers her agency's semi-annual report on its supervision and regulation of the financial system. Photo by Kevin Dietsch/UPI

WASHINGTON, Sept. 28 (UPI) — The head of the U.S. Federal Reserve on Wednesday delivered to Congress a positive assessment of the nation’s banking system, saying it’s in a much better position than it was before it triggered the financial crisis nearly a decade ago.

In testimony before the House Financial Services Committee, Fed chairwoman Janet Yellen said Wall Street’s health has “strengthened considerably” in the years since the crisis and ensuing Great Recession.

The nation’s five largest banks, she said, have doubled their capital since 2008 to almost $800 billion and boosted their assets by more than $1 trillion in the last five years.

Yellen’s testimony was given to summarize and gauge her agency’s supervision and regulation of the U.S. banking system.

“One of the Federal Reserve’s fundamental goals is to make sure that our regulatory and supervisory program is tailored to the risk that different financial institutions pose to the system as a whole,” she said. “As we saw in 2007-08, the failure of systemically important financial institutions can destabilize the financial system and undermine the real economy.

“The Federal Reserve has made substantial progress in building a regulatory and supervisory program that is consistent with these principles.”

Yellen said among other steps, the Federal Reserve has implemented various standards to limit the potential threat the banking system could pose to the domestic economy.

Those efforts fall into two categories, Yellen said — resiliency and resolvability, meaning the agency is taking steps to make large institutions more resilient and less susceptible to failure, and implementing safeguards to mitigate the harm those banks can cause on the broader economy if they do fail.

However, the Fed’s handling of smaller, community banks is different.

“When it comes to bank regulation and supervision, one size does not fit all,” Yellen said. “In supervising community banks, we follow a risk-focused approach that aims to target examination resources to higher-risk areas of each bank’s operations and to ensure that banks maintain risk-management capabilities appropriate to their size and complexity.”

Yellen testified before the committee because President Barack Obama has not yet filled a position created by the Dodd-Frank Act — the vice chairman of supervision,Bloomberg reported.


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