Treasury Secretary Janet Yellen said Thursday that the capacity of the U.S. government to respond to and prop up failing financial markets was “decimated” by cutbacks enacted during the Trump administration.
Her remarks come in the wake of state interventions to save depositors at failed banks Signature and Silicon Valley Bank (SVB), which catered to a niche clientele of wealthy business people in the cryptocurrency and venture capital sectors.
Depositors were reimbursed for the banks’ losses well above the Federal Deposit Insurance Corporation’s (FDIC) $250,000 standard limit into the billions of dollars.
“When the President and I took office in January 2021, we inherited a financial stability apparatus at Treasury that had been decimated,” Yellen said at a meeting of the National Association for Business Economics.
“For example, I walked in to find an FSOC [Financial Stability Oversight Council] team that was less than one third of the size it was five years prior. In 2016, FSOC’s policy, analysis, and operations teams were fully staffed. By 2021, the analysis team had been eliminated,” she said.
Yellen touted the role of the state in the financial sector, sounding notes harkening back to previous eras of global finance that have been highlighted in recent weeks by some influential market commentators.
“Even in a well-regulated system, public confidence is key. When there are cracks in confidence in the banking system, the government must act immediately. This includes making forceful interventions, like we did. As I have said, we have used important tools to act quickly to prevent contagion. And they are tools we could use again,” she said.
How exactly her statements fit into the Biden’s administration’s wider economic policy, which was branded last year as “modern supply side economics” and meant to address inequality in the U.S. through public investment, is unclear.