Yellen’s Plan to Oversee Nonbank Finance Firms

Yellen has laid out a plan to oversee nonbank finance firms. This blueprint, which will be voted on by regulators today, grants them the power to assess whether a firm may be engaged in activities that pose a systemic risk to the financial system. Previously, regulators could only assess the importance of a particular activity or sector from a distance. With this new authority, they can now closely examine individual firms. The timeline for implementation is as early as next week, with regulators studying firms under their purview and potentially designating them as systemically important. However, the process of designation can take some time, as firms will have the opportunity to defend themselves. The Financial Stability Council has already been studying issues related to private credit and identifying the most risky firms. The new powers granted to regulators will allow for a deeper examination of these firms. It remains to be seen if the findings will differ from the previous report that found no systemic risk. Overall, this is a significant step towards ensuring the stability of the financial system.