Ex-Fed Chief Yellen: Deregulation Risks ‘Gigantic Holes’ In Financial Systems

Can it happen again?

A decade on, with the financial crisis in the rearview mirror, Janet Yellen, former chair of the Federal Reserve, said there could indeed be another financial crisis on the road ahead.

CNBC reports that Yellen, speaking at a discussion in New York on Monday (Dec. 10) at CUNY, said there could indeed be another crisis because of a push toward deregulation, and also because there is less power for regulators to effectively combat panics. Among the looming risks: leveraged loans.

“I think things have improved, but then I think there are gigantic holes in the system,” Yellen said at the event, which was moderated by Paul Krugman, New York Times columnist. “The tools that are available to deal with emerging problems are not great in the United States,” she added. Regulation still remains to be addressed, and as Yellen said at the event, as quoted by CNBC, “I’m not sure we’re working on those things in the way we should, and then there remain holes, and then there’s regulatory pushback. So I do worry that we could have another financial crisis.”

As has been widely noted, the push toward deregulation has occurred over the past several months, so much so that it seems Yellen’s cautionary remarks may mark a shift from past stances. The news site noted that Yellen said as recently as June 2017 that she did not believe there would be another financial crisis – and those remarks came as changes to the financial system through deregulation were still yet to be felt.

As has been widely reported though the last several months, the Trump administration and the Republican Congress had/have a wide-ranging agenda for financial deregulation in place, among them easing Dodd-Frank mandates on banking that came in the wake of the financial crisis a decade ago. The Hill reported last month that Randal Quarles, the Fed vice chairman of supervision, has been “walking a tightrope” over ongoing attempts by Congress to change existing capital and leverage rules. The Fed has proposed a plan that would loosen oversight of banks that have less than $700 billion in assets.

Turning back to Yellen’s Monday remarks, CNBC noted that she said during the crisis last decade, the Fed “probably could have done more,” but did not so do in the midst of public opinion, stating that “at the margin, I think that was something that concerned people about pushing asset purchases a lot further.” Yellen did not offer commentary on the current economic landscape, said the site, beyond noting that interest rates are low and are “likely to remain lower than they’ve been in past decades.”