Yellen Discusses FSOC 2021 Report on Capitol Hill

Treasury Secretary Janet Yellen recently testified in front of the Senate Banking Committee and House Financial Services Committee covering the Financial Stability Oversight Council (FSOC) 2021 Financial Stability Report. Questions from Members of Congress focused on inflation, the potential risk posed by climate change, cryptocurrency and stablecoins, the Ukrainian/Russian conflict, as well as other risks posed by the financial system. Secretary Yellen noted the FSOC’s assessment that risks in the money market fund, open-ended mutual fund, and hedge fund space still exist. Specifically, Yellen noted vulnerabilities remain in money market funds and open-ended mutual funds due to potential liquidation pressures matched with liquidity imbalances. Importantly, members of both Committees did not dig farther on Yellen’s comments into MMFs or open-end mutual funds. On climate change disclosure, Yellen applauded the SEC’s focus on issuer disclosure and noted it would be beneficial to asset managers. Regrading the recent volatility in the stablecoin market, Yellen noted that stablecoins share similarities with money market funds and could be “prone to runs” leading to financial stability concerns.