WASHINGTON — The nation’s top financial regulators told Congress Friday that threats to U.S. financial stability remain elevated even though the country has recovered from what appears to be the worst economic shocks from the pandemic.
In its annual report on threats to the economy, the Financial Stability Oversight Council highlighted for the first time climate change as an emerging risk, citing among other things potential loan losses from floods and forest fires.
The Biden administration has made climate change a top priority, reversing the decision by the Trump administration to pull the United States out of the Paris climate agreement.
The council is chaired by Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen, and the heads of other regulatory agencies including the Securities and Exchange Commission, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
The council was created by Congress in 2010 to address gaps in coordination among financial regulators that were exposed by the 2008 financial crisis. The council is required to issue an annual report to Congress assessing risks to the financial system.
Yellen, speaking before the panel approved the report Friday, said the turmoil that enveloped financial markets after COVID-19 hit in March 2020 had been dealt with quickly by the Federal Reserve and other agencies. She said the response showed that the “financial system is far more shock resistant” than it was when the 2008 crisis struck.
While there have been improvements, Yellen said the council still found risks to financial stability were elevated compared with the period before the pandemic.
Another emerging threat listed in the council report is cybersecurity. The council argued that more needs to be done to protect banks and other financial institutions from ransomware, malware attacks and data breaches.
The report also noted just how much remains unknown right now. Among the concerns were the now rapid-spreading omicron variant of the virus, a recent but persistent spike in inflation, and concerns that financial turmoil in China could adversely affect the U.S. and global economy.
“Global economic activity in the COVID-19 era has been unusually volatile, with periods of economic shutdowns followed by rapid growth amid reopening,” the report said.
As part of the response to climate change, on Friday the council approved the creation of an inter-agency working group to monitor climate change risks.