Yellen Puts Climate on First Financial-Stability Meeting Agenda

Source: By Christopher Condon and Saleha Mohsin, Bloomberg • Posted: Thursday, March 25, 2021

Janet Yellen
Janet Yellen Photographer: Alex Wong/Getty Images

Treasury Secretary Janet Yellen will preside over her first meeting as head of the Financial Stability Oversight Council on March 31, with climate change on the agenda of the cross-agency body’s initial gathering under the Biden administration.

The public portion of the agenda includes “climate change and its potential impacts on financial stability,” according to a Treasury statement on Wednesday. The private part of the gathering will address “hedge fund activity and open-end mutual fund performance during the Covid-19 crisis,” the Treasury said.

The meeting will take place at 3 p.m. in Washington via videoconference.

FSOC was formed by Congress after the global financial crisis, and it was charged with spurring regulatory cooperation in the aim of identifying and preventing broad risks to the financial system. It includes the heads of eight regulatory bodies, including the Federal Reserve, and is chaired by the Treasury secretary.

Under Yellen, the Treasury has elevated its focus on climate change, promising to push financial institutions to be better prepared for risks associated with it. The Fed has also indicated it will factor climate-change risks into its efforts.

Yellen and Fed Chair Jerome Powell came under questioning from Republicans over this new focus during congressional hearings Tuesday and Wednesday, with some GOP lawmakers concerned that fossil-fuel industries could find it tougher or more expensive to get access to capital.

Read more: U.S. Weighs Global Climate Impact Benchmark for Wall Street

The attention to hedge funds and open-end mutual funds appears to reflect the work the Treasury has been pursuing recently in examining the market turmoil that ensued a year ago when investors reacted to the onset of the Covid-19 pandemic.

Hedge funds and open-end mutual funds have come under scrutiny for the roles they played in that panic, in which, among other things, the market for U.S. Treasury securities nearly seized up.

The flight of money from money-market mutual funds that invest in short-term corporate debt, in particular, has attracted fresh attention. Similar to 2008, the Fed a year ago opened an emergency credit facility to provide a rescue to so-called institutional prime money funds, giving them a buyer for suddenly illiquid securities as investors withdrew.

Open-end bond mutual funds, which invest in longer-term debt, also came under some stress as investors ramped up selling.

Nellie Liang, the Biden administration’s pick to serve as Treasury’s undersecretary for domestic finance, commented last year that money funds and open-end bond funds appear to carry a “liquidity mismatch” because investors expect daily liquidity while the funds hold securities that can sometimes be difficult to sell.

(Updates with background starting in fourth paragraph.)