The US Treasury Department and some of the top US financial regulators have proposed new rules that would make it easier for the Federal Reserve to designate nonbanks as systemically important, making them easier to monitor and regulate.
In remarks to the Financial Stability Oversight Committee (FSOC) board meeting on April 21, US Treasury Secretary Janet Yellen expressed concern about "non-bank" financial institutions because of their current lack of regulation and when they appear Problems can trigger broader financial contagion when going through painful periods. "Non-bank" is an umbrella term for any entity that does not hold a banking license but still provides certain financial services. Unlike traditional banking institutions, these entities are not protected by the Federal Deposit Ins Murance Corporation (FDIC) . Non-banks include venture capital firms, cryptocurrency firms, and hedge funds.
"The existing guidance, issued in 2019, places undue barriers in the designation process," Yellen said. Yellen said the new guidance removed those hurdles to assigning non-bank status to major financial firms, a process that currently takes up to six y ears.
The new, shorter insight and designation process will still allow sample time for regulators and agencies to communicate and discuss specifics, according to officials attending the meeting. In addition, the new guidance will replace the 2019-era rule with an analytical process in which the The committee determines "whether significant financial distress of a firm or firm's activity would pose a threat to the financial stability of the United States." Yellen assured investors and ordinary citizens that the US banking sector remains sound and safe after cry ptocurrency and technology-friendly banks Silvergate Bank, Signature Bank and Silicon Valley Bank collapsed last month in the worst banking crisis since 2008.
She nodded bluntly in agreement with the new guidance, warning that the recent banking crisis was a prime example of why more oversight and emergency provisions should be provided to the FSOC and the Fed. “The events of the last month have taught us that our work is not done. The powers of emergency intervention are critical. But equally important are the regulatory regimes that can help prevent financial turmoil from developing and spreading,” Yellen said.
