WASHINGTON – Two years ago, Janet L. Yellen co-signed a letter to Treasury Secretary Steven Mnuchin urging her not to go ahead with plans to ease oversight of large financial firms, warning that this could threaten the stability of the US financial system.
Ms. Yellen’s plea, who was joined by Ben Bernanke, another former Fed chairman, and former Treasury secretaries Jacob J. Lew and Timothy F. Geithner, has gone unheeded. Under Mr. Mnuchin’s leadership, the Financial Stability Supervisory Board continued its plans to stop labeling large non-bank financial institutions like insurers and asset managers as a threat to the financial system, destroying a key pillar of the post-financial crisis regulatory era. .
Now Ms Yellen, who was appointed by President-elect Joseph R. Biden Jr. as Secretary of the Treasury, is set to roll back some of the Trump administration’s regulatory cuts if she gets Senate confirmation. .
Her confirmation hearing before the Senate Finance Committee on Tuesday is expected to focus largely on Ms. Yellen’s plans to revive an economy plagued by a pandemic. But she will also be under pressure to show Democrats and progressive groups that she is ready to end what they see as Mr Mnuchin’s darling on Wall Street.
In recent weeks, Ms Yellen and Wally Adeyemo, Mr Biden’s candidate for Deputy Treasury Secretary, have taken a virtual listening tour of industry groups in Washington. According to people who attended these sessions, both emphasized the need to create “equitable growth”, using the tools of the Treasury Department to tackle climate change and rebuild regulatory institutions like the FSOC.
“The focus is on workers, racial justice and inequality, and that’s a good place to start,” said Lisa Donner, executive director of Americans for Financial Reform, an advocacy group that met Ms. Yellen this month. “But reversing the things the current Treasury Department has done is not enough.”
Americans for Financial Reform, a left-wing organization that has spent the past four years largely shut out of the Treasury Department, wants Ms Yellen to give new direction to the FSOC, which has the power to subject large financial firms to greater scrutiny. strict. . It was created by the Dodd Frank Act of 2010 to prevent a repeat of what happened on the eve of the financial crisis, when companies like insurance giant AIG made risky bets out of reach. regulators and then had to be bailed out by taxpayers. .
Its power was defeated under the Trump administration, which freed AIG and three other financial firms from tighter scrutiny.
Americans for Financial Reform urged Ms Yellen and transition officials to harness the power of the FSOC to designate climate change as a “systemic risk” and create tools to limit the leverage of hedge funds, which are only lightly regulated.
Ms. Yellen probably has a new regulatory approach in mind. She called last year for a “new Dodd-Frank,” arguing at a Brookings Institution event that existing laws were insufficient to deal with the “shadow” banking problems that emerged when the pandemic hit. caused serious market unrest.
The former Fed chairman has also shown that she is prepared to punish banks for wrongdoing when warranted. In 2018, on Ms Yellen’s last day of work, the Fed asked Wells Fargo to replace four members of its 16-person board for failing to properly oversee the bank amid a fraud scandal.
But Ms Yellen’s experience at the Federal Reserve and her understanding of the banking system have allayed the concerns of some in the financial industry who might otherwise be wary that a new Democratic administration will quickly roll out onerous new rules. In meetings with financial services groups, Yellen said helping to shape and oversee the Biden administration’s economic relief efforts would initially be her top priority.
“She knows the banking system very well; she knows the strength and role of big banks, including the positive role they played over the past year, ”said Kevin Fromer, Managing Director of the Financial Services Forum, a lobby group that also met with Ms. Yellen. month.
Ms Yellen will have to recuse herself from treasury cases involving certain financial institutions following an ethics deal she signed during the disclosure of paid speeches she gave to large corporations and Wall Street banks Since leaving the Federal Reserve in a 2018 disclosure, which was released on New Years Eve, Ms. Yellen has earned more than $ 7 million in speech fees from companies such as Goldman Sachs, Citigroup, and Citadel.
Jeff Hauser, the revolving door project manager, called on Ms Yellen to publish the content of her speeches. But he said they were less troubling than some of the advisory work Mr. Biden’s other candidates have done in recent years for companies like Blackstone, a giant asset manager led by Stephen Schwarzman, and the company. Palantir data mining.
Biden’s transition team declined to release videos or transcripts of the speeches, noting they typically participate in unscripted discussions about the economy.
“Yellen did not make any prepared remarks during his speeches; most were casual conversations where she answered questions from a moderator and some were reporters, ”said Sean Savett, a spokesperson for Biden’s transition. “She has already signed ethics agreements governing her relationship with these entities and will of course comply with all appropriate challenges.”
Republicans on the Senate Finance Committee might ask Ms Yellen about speaking fees, but Democrats are unlikely to press her on the issue.
“This is the worst economic crisis in 100 years, and no one is better qualified than Secretary-designate Yellen to lead an economic recovery,” said Senator Ron Wyden of Oregon, who will become chairman of the committee. finances when Democrats take control of the Senate. “She deserves a lot of the credit for the longest economic expansion in our history, which lasted until the pandemic struck.”
The confirmation process should be relatively smooth. Senator Charles E. Grassley of Iowa, currently the Republican Chairman of the Finance Committee, has spoken positively about Ms Yellen since Mr Biden selected her for the job.
Mr. Grassley said Friday that he had spoken to Ms Yellen and told her he had stressed the importance of cooperation with congressional oversight, and also expressed concern that tax increases and tighter regulations would slow the recovery economic.
In 2014, the Senate confirmed Ms. Yellen as President of the Fed by 56 votes to 26.
While Ms. Yellen, an economist by training, has an in-depth knowledge of monetary policy, the Treasury Department’s portfolio is vast. She will likely be faced with questions about America’s economic relationship with China, her stance on sanctions policy with respect to Iran, and her thoughts on fiscal policy. She might even be faced with questions about the thorny topics the Treasury deals with, like whether Harriet Tubman should be the face of the $ 20 bill, an Obama administration initiative that Mr. Mnuchin ditched.
Prior to Ms. Yellen’s hearing, several groups indicated that they were excited about a change in tone and staffing at the Treasury. Mr. Mnuchin managed the department with a small staff and was very receptive to executives from large banks and corporations.
Luz Urrutia, managing director of the Accion Opportunity Fund and the Opportunity Fund, said she left hopeful after meeting with Ms. Yellen last month about community development finance institutions. The Trump administration has repeatedly tried to cut funding for grant programs from the CDFI Fund, which the Treasury oversees. Ms. Yellen told the group that she wanted to expand the lending capacity of CDFIs so that they can better serve minority communities.
“They didn’t think CDFIs provided the level of impact and the capacity to serve these communities,” Ms. Urrutia said of the Trump administration. “This is a glaring difference between Yellen and the current administration.”