Janet Yellen, former chairwoman of the Federal Reserve, is sounding a warning bell about another financial crisis in the making, saying the loss of authority by banking regulators and the move toward deregulation are worrisome.
Yellen pointed to leverage loans—those extended to businesses with weaker credit—as a primary area of concern, since regulators are currently powerless to address them at the top level. Instead, they can only focus on problems at individual banks.
“I think things have improved, but then I think there are gigantic holes in the system,” Yellen told a New York audience Monday night, as quoted by CNBC. “I’m not sure we’re working on [the leverage loan issue] in the way we should, and then there remain holes, and then there’s regulatory pushback. So I do worry that we could have another financial crisis.”
The warning is a significant course reversal for Yellen, who in 2016 said she wasn’t worried about a recession, and last year said she did not believe there would be another financial crisis in our lifetime because of financial reforms. A continued push for deregulation has made her rethink that.
Yellen began walking back her economic optimism earlier this year, saying she was “worried about the systemic risks” in corporate leveraged loans. Banks, she said, are packaging up that debt and selling it off, much like they did during the last economic crash.
Yellen, now an economist at the Brookings Institution, has previously spoken out against U.S. President Donald Trump’s unprecedented criticism of the Fed’s policies. “To totally undermine these institutions that are assets to the U.S. and the globe is worrisome,” she said.
