Federal Reserve Chair Janet Yellen said regulators will take steps to boost the stability of clearinghouses if necessary and are evaluating the risks to U.S. banks.
“As central counterparties gain increased prominence, we will work with the other relevant member agencies to evaluate the robustness of recently enhanced rules and standards and the adequacy of risk-management practices,” Yellen said at a meeting Tuesday of the Financial Stability Oversight Council.
“We also are evaluating how banks are managing their exposures” to central clearing parties, and “we’re prepared to take steps to strengthen standards to promote financial stability if needed,” she said.
Clearinghouses, platforms where swaps transactions are cleared and settled, were among the potential threats to stability the FSOC discussed at its meeting in Washington to coincide with the release of the council’s annual report. Financial firms including JPMorgan Chase & Co. and BlackRock Inc. argue that reliance on clearinghouses shifts risks to a handful of entities, and the collapse of one could lead to big losses for banks.
“New rules and supervisory guidance that simply push activities from regulated to unregulated firms warrant attention if the shift does not mitigate the risks to financial stability,” Yellen said.
The council, which is led by Treasury Secretary Jacob J. Lew, discussed other potential risks including high-speed trading, cybersecurity and companies taking too much risk to compensate for near-zero interest rates.
Lew criticized legislation proposed by Senate Banking Committee Chairman Richard Shelby, an Alabama Republican, that seeks to strengthen oversight of the Fed. Shelby’s bill “contains changes to our financial regulatory framework that would roll back the clock and leave us with weakened oversight, fewer consumer protections and less effective tools to address risks in the system,” Lew said.
The legislation would “needlessly tie” the FSOC “in knots with delays and hurdles that would significantly impair our ability to identify and mitigate threats to financial stability, while leaving potential risks unchecked,” Lew said.