Janet Yellen says US banks still have big risk-management challenges

A file picture of Federal Reserve Board Chair Janet Yellen. PHOTO:AFP
A file picture of Federal Reserve Board Chair Janet Yellen. PHOTO:AFP

WASHINGTON (BLOOMBERG) - Large U.S. banks have major risk-management flaws that could potentially hurt the broader financial system if not addressed, Federal Reserve Chair Janet Yellen said Wednesday in remarks prepared for a House Financial Services Committee hearing.

Ms Yellen's comments focused on actions the Fed has taken since the 2008 credit crisis to stabilize banks and the financial system. Lawmakers on the Republican-controlled panel are likely to grill Ms Yellen on what they view as the Fed's intrusive role in the economy.

"Substantial compliance and risk-management issues" are still present in big lenders regulated by the Fed, Ms Yellen said. "Compliance breakdowns in recent years have undermined confidence" in the banks' ability to manage risks and "could have implications for financial stability, given the firms' size, complexity and interconnectedness."

 

In the coming year, the Fed will take measures "that will complement the steps we have already taken," she said without providing details in her prepared testimony.

The Fed is working with other U.S. banking agencies to identify regulations that are "outdated, unnecessary or unduly burdensome," Ms Yellen said.

The House panel and the Senate Banking Committee have asked Yellen to appear twice-annually before both committees to talk about supervision and regulation because President Barack Obama hasn't nominated anyone to be vice chairman for supervision, a position created by the Dodd-Frank Act. The person in that job would have to appear twice a year before those committees.

Governor Daniel Tarullo has been the Fed's point person on regulatory matters without having been nominated to be vice chairman.