U.S. Treasury Secretary Janet Yellen cautioned, signifying persistent weaknesses in the financial system which, as she specified, could be linked to commercial real estate (CRE) and accelerating ecosystems of digital assets.
Economic indicators like cooling inflation and low unemployment are good news, Yellen said, but risks remain that could weigh heavily on the economy, especially in sectors with technological underpinnings, like cryptocurrencies and artificial intelligence (AI). Bloomberg reported.Â
Worries About Commercial Real Estate and Digital Assets
During a speech on 6th December, Friday, Yellen outlined the priorities of the Financial Stability Oversight Council (FSOC), a key body created after the 2008 financial crisis to monitor systemic risks.
She confirmed that the FSOC continues to focus on commercial real estate’s credit risk, urging regulators to remain vigilant about the impact of economic pressures on the sector.Â
The Treasury Secretary also pointed out that the FSOC has stepped up efforts to monitor emerging technological risks, particularly in the realms of digital assets and AI, both of which present potential benefits but also raise concerns about financial stability.
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Yellen also pointed to the need for broad legislation and oversight of digital assets. As digital currencies, stablecoins, and cryptocurrencies attract increasing interest, the FSOC has repeated its call for a federal regulatory framework to oversee stablecoin issuers and mitigate risks associated with crypto assets.
Recognizing the efficiency these innovations could offer, Yellen also emphasized their significant risks, which can include cybersecurity vulnerabilities and reliance on third-party service providers.
FSOC also urged to create more synergies between agencies to build expertise for assessing systemic risks of an emerging technology like AI that could further upend financial services.
The Threat of Cyberattacks
A second major focus of Yellen’s remarks was on cybersecurity threats. The FSOC expressed concerns about cyberattacks and how they destabilize the financial system. A recent cyberattack against the Industrial & Commercial Bank of China (ICBC) that disrupted U.S. Treasury trades showed the potential such hacks have to cripple key financial infrastructure.
The FSOC also noted that the number of cyber incidents has increased since the pandemic and that geopolitical stresses have added to those risks.
As the Biden administration nears its final year, Yellen reflected on the work of the FSOC, praising its efforts to bolster the resilience of the financial system through improved regulatory frameworks.
However, she also criticized the state of financial monitoring at the close of Donald Trump’s first term, suggesting that stronger regulatory bodies were needed to prevent the kind of systemic risks that led to the 2008 financial crisis.
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