Yellen Pushes for Stablecoin Oversight as Financial Risks Mount

• Yellen calls for stronger crypto oversight to tackle financial vulnerabilities and stablecoin risks  
• FSOC highlights rising commercial real estate stress and private credit transparency challenges  
• AI in finance needs regulation as FSOC pushes for expertise to manage technological risks  

U.S. Treasury Secretary Janet Yellen has renewed her call for stricter regulation of crypto assets and stablecoins, citing the need to address vulnerabilities in the financial system.

Speaking at the Financial Stability Oversight Council’s (FSOC) final meeting of the year, Yellen highlighted the dual impact of digital asset innovation. While it provides market benefits, it also raises significant risks like cybersecurity threats and operational challenges.

Yellen warned that the rapid pace of digital asset innovation outstrips existing regulatory frameworks. She urged the FSOC to prioritize developing federal policies for stablecoin holders and pushed for legislative measures to reduce risks tied to digital currencies.

Commercial Real Estate Risks

Yellen also pointed to ongoing pressures in the commercial real estate (CRE) sector as another priority for regulators. She noted rising arrears and loan losses at large banks, with late payment rates for CRE loans reaching 11% in the second quarter of 2024—the highest in a decade.

The FSOC called for continued caution, emphasizing the importance of monitoring the financial system’s ability to withstand CRE-related stress. Declining property values and worsening loan quality, it warned, could undermine economic stability.

Challenges in Private Credit Transparency

The FSOC also raised concerns about private credit lenders, whose opaque operations hinder effective risk assessment. These non-bank entities, which gained prominence after the 2008 financial crisis, have emerged as major competitors to traditional lenders.

The council underscored the need for improved data collection to better evaluate risks, especially as private credit attracts increased participation from retail investors and becomes more entwined with banks and insurance firms.

AI and Emerging Technology Risks

Yellen addressed the growing risks posed by artificial intelligence and other technological advances. While recognizing their benefits, she stressed the importance of implementing regulatory frameworks to mitigate potential threats.

Read also: SEC to Lose Crypto Oversight? Trump Pushes CFTC to Lead Digital Assets

The FSOC recommended building inter-agency expertise to oversee AI-related systemic risks in financial services and foster innovation in a controlled setting.

The council concluded its 2024 activities by reaffirming its commitment to enhanced oversight, greater transparency, and legislative action to fortify the financial system.