Treasury Secretary Jacob Lew highlighted several potential risks to the financial markets Thursday while testifying before Congress.
The Financial Stability Oversight Council was created to counter potential threats to the financial markets. The council released its annual report which highlighted 12 areas of concern. Lew presented the findings during a congressional hearing.
“The Council convenes regularly to monitor market developments and to take action when needed to protect the American people from potential risks to the financial system,” Lew testified. “The annual report represents the Council’s consensus on key risk areas and recommendations to address those concerns.”
Lew highlighted cyber security, housing and global financial development as key areas of concern. Cyber security has been a huge issue for many as digital technologies become increasingly hard to regulate. It’s also a national security issue as foreign cyber attacks and hacking remain a possibility for government and financial institutions.
Lew recommends policymakers keep a close eye on potential threats to international financial development. The report details that slow economic growth globally has been putting downward pressure on domestic markets. Lew recommends policymakers watch for potential issues in foreign markets.
“Market participants and regulators should be vigilant in identifying and responding to potential foreign shocks that could disrupt financial stability in the United States,” Lew stated.
The report highlighted several changes playing out in foreign markets that could impact domestic markets. It lists Britain leaving the European Union, changes within the Chinese markets and the Greek financial troubles as areas that policymakers should be paying close attention to.
The report also highlighted housing as an area of concern. The housing markets played a huge role in the last recession. The recession was sparked by the subprime mortgage crisis and the financial crisis of 2007. The report argues more financial reform legislation is needed to secure the housing market.
The last recession was particularly bad with many still feeling the impact today. It was a severe economic downturn which earned the nickname, the Great Recession. Some economists have predicted the United States will continue its slow recovery for the next 25 years.
The council was created in response to the last recession as part of the Dodd-Frank Act. Its primary purpose is to address issues within the financial markets and present the findings before lawmakers. The report also highlighted asset management, access to liquid capital, central counterparties, wholesale funding markets, interest rates, data availability, risk management, the financial market structure and financial innovation as areas of concern.
