Yellen says she's fixing 'cracks' in US Treasury ‘decimated’ by Trump administration

US Secretary of the Treasury Janet Yellen has pinned blame on the Trump administration for cutting the number of government employees resulting in the department's failure to detect the three US banks' recent collapse due to a shortage of staff.

During a speech on Thursday at a conference of the National Association for Business Economics, Yellen said that the Trump administration "decimated" the Treasury’s financial stability department and she’s focused on repairing the "cracks".

Yellen said in a prepared remark, “When the President and I took office in January 2021, we inherited a financial stability apparatus at Treasury that had been decimated.”

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She said the budget cuts carried out by the Trump administration had left the Department without enough employees to monitor and regulate US banks.

Yellen and other regulators have been criticized for the Treasury's failure to spot the red flag warnings leading to the collapse of Silicon Valley Bank (SVB) earlier this month, along with the demise of the crypto-focused Signature Bank and Silvergate Bank.

The Treasury Secretary blamed the failure to foresee SVB’s collapse on her lack of resources and deregulation efforts during Donald Trump's presidency.

“Regulatory requirements have been loosened in recent years. I believe it is appropriate to assess the impact of these deregulatory decisions and take any necessary actions in response,” she said.

In 2015, more than a dozen bank CEOs, including SVB’s CEO, lobbied to reduce banking rules, urging legislators to relax regulations including stress tests designed to assess lenders’ vulnerability during times of economic hardship and liquidity requirements meant to prevent bank runs.

In 2018, then-President Trump signed a law that eased banking regulations, particularly for small and mid-sized banks.

Yellen said that the department at the US Treasury tasked with mitigating potential threats to financial stability -- the Financial Stability Oversight Council (FSOC) -- was severely understaffed and underfunded when she took office.

FSOC in 2018 was "less than one-third of the size” it was when Trump came to power in 2016, she said, adding that the analysis team was completely eliminated. “This team, working with financial regulators, was responsible for helping monitor systemic risk. This meant that we went into the pandemic crisis without the staffing we needed to monitor risks to the health of the financial system,” the Treasury Secretary noted.

The fact that on Sept. 29, 2017, former Treasury Secretary and FSOC Chairman Steven Mnuchin approved the fiscal year 2018 budget that included a 15 percent cut to FSOC’s funding and a 50 percent staff reduction—from 36 full-time employees to just 18, posit that Yellen is right.

“Over the past two years, I have made it a top priority to rebuild the financial stability infrastructure at Treasury,” Yellen said, noting that she has doubled the size of FSOC’s staff since 2021.

The Trump administration also cut the budget and staff at the Office of Financial Research (OFR), an independent agency that analyzes market trends to spot financial risks for Treasury Department officials.

The OFR’s budget was slashed by 25 percent in 2018. Between 2016 and 2020, the number of employees working at OFR was almost halved from over 200 to just 107.

Yellen insisted on Thursday that the deregulations adopted during the Trump era had gone too far, resulting in the recent collapse of the three commercial banks in the United States.

“These events remind us of the urgent need to complete unfinished business: to finalize post-crisis reforms, consider whether deregulation may have gone too far, and repair the cracks in the regulatory perimeter that the recent shocks have revealed,” she said.

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