In June 2020, she argued that Congress had left gaps in overseeing the activities of “shadow banks” – a term that refers to everything from asset managers and insurance companies to private equity firms. These gaps meant that the Federal Reserve had to intervene early in the coronavirus pandemic to prevent debt markets from breaking down as panic investors in mutual funds and other companies withdrew money.
“There are really problems here in the powers created by Dodd-Frank, and we saw everything explode, except for the intervention of the Fed that saved us from a financial crisis,” she said at an event organized by the Brookings Institution, where she is a distinguished subject. “Personally, I think we need a new Dodd-Frank.”
While statements like this could create a potential conflict with Wall Street if it is confirmed for the position of Treasury, Yellen – former Fed chairman – is not an enemy of finance. Still, these comments, as well as her track record as a bank regulator, help explain why many Democrats are confident she will not be in debt to financial interests.
“People from the public and private sectors seek your wisdom and trust your experience because of your transparency and in-depth knowledge of issues,” Senator Sherrod Brown (D-Ohio), one of the toughest critics on Wall Street in Congress who is prepared to chair the Banking Committee, said POLITICO. “She is the type of public servant we need, and I thank her for returning to public service at the height of yet another crisis.”
After his disclosures were released, Jeff Hauser, director of the progressive Revolving Door Project, tweeted that the speech money “builds personal affection and connection with the companies that Yellen is now going to examine.” But even he says he doesn’t mind that much.
If “Yellen made war story speeches for a lot of money, it’s unfortunate given her new role, but not a big deal,” said Hauser, although he added that she should still make all of her comments public. “Nobody thought they were buying access to a future regulator, and stories of war without secrets are very different from selling strategic advice based on public service.”
Yellen’s comments on many of these events are not available, but in public speeches to some financial firms, she had other notices for corporate America.
At a February 2019 event organized by the Structured Finance Association, a financial lobbying group then called the Structured Finance Industry Group, Yellen warned about the increase in debt among non-financial companies, according to a Reuters report at the time. She revealed to have received $ 180,000 for her appearance.
“What I would worry about is if the economy slows down, we could see a big corporate crisis,” she said. “If companies are in trouble, they fire workers and reduce investment spending. And I think it’s something that could make the next recession a deeper one. “
The lecture fees disclosed by Yellen during the holiday included more than $ 700,000 that she received from Citadel, a hedge fund that is also affiliated with a broker, for four different commitments in 2019 and 2020, as well as another event paid in 2018 , the value of which is not disclosed because it does not fall within the period covered by the report. She received about $ 1 million from Citigroup, one of the country’s largest banks, for nine different lecture events.
She spoke with other major companies, such as Bank of America, Goldman Sachs, Credit Suisse, PIMCO, Google and Salesforce.
Many of the talks focused on their views of the economy, where the risks may be, how the Fed can respond to these dynamics and comments on long-term problems.
“I see the main factor in the trade war being economic,” she said at a summit of CEOs organized by ING, according to a prominent video posted by the company, which paid her $ 225,000, according to the disclosure. “It’s about stagnating living standards and it created a sense of despair.”
Yellen has pledged to go to Treasury ethics lawyers to “seek written authorization to participate personally and substantially in any specific matter” involving a company for which she received remuneration in the previous year.
Other Senate Democrats defended her, suggesting that they do not consider payments disqualifying, even though other nominees have been criticized for more direct financial ties to companies. Hillary Clinton was famous during the 2016 presidential campaign – even from many Democrats – for receiving money from banks for lectures.
Sen. Ron Wyden (D-Ore.), Who will chair the Finance Committee, which has jurisdiction on Yellen’s confirmation, he stressed that she has spoken on a series of paid and unpaid forums since leaving the Federal Reserve in early 2018. “She has been completely transparent,” said Wyden.
Senator Elizabeth Warren (D-Mass.), Who recommended Yellen to the Biden camp, took a more critical view – but narrowly. An aide to the senator said that Warren “doesn’t think she should have made these speeches, but based on Yellen’s track record of taking on big financial institutions, she is supporting her nomination.”
Hedge funds are among the large financial institutions Yellen has dealt with in his comments.
In comments at the June Brookings event, she said the financial market stress in March showed that the risks posed by investments fueled by hedge fund debts “were very real and serious”, although she did not directly characterize them as responsible by the market crash. Current regulators have said they would like more information on that front.
The Managed Funds Association, which represents hedge funds, said these companies “resisted the March market turmoil without posing systemic risk to the financial system”, but added that they support the search for reforms in the structure of government debt markets from the USA.
Yelen said that the financial explosion last year should be the main focus. “We saw a financial system that did not react resiliently to stresses, which makes business unfinished in the current crisis, and reasons to be concerned about the stability of the financial system,” she said in another event, promoted by the Institut Montaigne, in the same month.
One of its solutions: give more powers to the Financial Stability Supervisory Board, a panel of financial regulators chaired by the Secretary of the Treasury.
This board, which she would lead in her new role, was designed in Dodd-Frank to fill some of those gaps, including identifying large companies that, if they went bankrupt, could threaten the entire financial system and therefore deserve stricter regulation. But she argued that the body had been “completely neutralized”, both by law itself and by litigation filed by MetLife that the Trump administration refused to appeal.
“We need to change the structure of the FSOC and develop its powers to deal more effectively with all the problems that exist in the shadow banking sector,” said Brookings’ Yellen.
She also said that agencies such as the Securities and Exchange Commission, which is tasked with ensuring the proper and fair functioning of markets, should be given an explicit mandate to help prevent financial crises.
The need to increase financial regulation came at a meeting between Yellen, his future deputy Wally Adeyemo, and Americans for Financial Reform, a progressive watchdog group.
Adeyemo “emphasized the commitment of the next government to restore and rebuild consumer protection and regulatory mechanisms and institutions, including the [Consumer Financial Protection Bureau] and FSOC ”, according to an official reading by the Biden transition team.