US Treasury seeks to tighten nonbank rules following banking crisis

April 23. 2023

By Tom Mitchelhill

Janet Yellen called for further regulation of nonbank institutions claiming they pose a systemic risk to U.S. financial stability.

The United States Treasury and a number of top U.S. financial regulators suggested new rules to make it easier for the Federal Reserve to designate nonbank institutions as systemically important, making it easier to supervise and regulate them.

In remarks from the Financial Stability Oversight Council (FSOC) Council Meeting on April 21, U.S. Treasury Secretary Janet Yellen raised concerns over “nonbank” financial institutions due to their current lack of supervision and the potential for wider financial contagion to take hold when these firms suffer through periods of distress.

‘Nonbank’ is an umbrella term for any entity that does not hold a bank license but still provides specific financial services. Unlike traditional banking institutions, these entities are not insured by the Federal Deposit Insurance Corporation (FDIC). Nonbanks include venture capital firms, crypto companies and hedge funds.

“The existing guidance — issued in 2019 — created inappropriate hurdles as part of the designation process,” Yellen said.

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