Thank you, Secretary Yellen. Nine months ago, several large domestic systemically important banks (DSIBs) went bankrupt. Tensions in the financial system led authorities to take emergency measures to stop the contagion.
One of the key lessons from the DSIB's failures was that regulators had become paralyzed in previous years and had failed to use legal authorities to protect the public as contemplated by federal law. Another lesson was that only a handful of big players can create chaos in the system. I am pleased that this year's annual report clearly highlights certain risks and guides us all towards the real use of our legal authorities, rather than relegating them to a dead letter.
Risks of today and tomorrow
Of course, it is tempting to focus on the risks of the past, but it is clear that certain risks are increasing every day and in the future. Importantly, we cannot focus solely on large pools of financial assets; We must also face the reality that big data sets play an increasing role in our financial system.
Big tech companies, including Big Tech, are leveraging their network effects in new ways. Some of these companies are larger than the most dominant players on Wall Street and have been infiltrating the financial system by developing networks that move payments and โdeposits,โ serving as cloud infrastructure players that underpin the digital system. of much of the industry, and emerging as fundamental models that drive new uses of artificial intelligence. It is not enough to write reports, we must also act.
Follow the law, instead of ignoring it
The Financial Stability Oversight Council also has a checkered history, including being paralyzed. Fortunately, this is changing. This year, the Council restored authority under Title I of the Dodd-Frank Act to subject financial actors operating outside the banking system to stronger financial stability safeguards. Despite the bailouts provided to shadow banks in the 2008 financial crisis, and again at the start of the pandemic, there are currently no total companies designated for further scrutiny. Next year, we must move on to credibly implement the authority. It is important that we make it clear that this designating authority is not a dead letter and will be used when justified.
The Title I designating authority is not our only tool that has been dormant. FSOC has two important authorities under Title VIII of the Dodd-Frank Act that could be used to strengthen the resilience of public financial market services and payment, clearing, and settlement activities. I am pleased that we are actively evaluating the first-time use of Title VIII authorities to address certain payment, clearing, and settlement activities.
I support the publication of this year's annual report, as it describes some of these risks in more detail and highlights our plans to focus more on digital technologies in 2024. But our annual report is not an end in itself. It is a roadmap for regulatory agencies to use our individual and collective authorities to protect against future crises. Thank you.
