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Yellen: Let’s address too big to fail

By
Nin-Hai Tseng
Nin-Hai Tseng
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By
Nin-Hai Tseng
Nin-Hai Tseng
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November 14, 2013, 7:24 PM ET
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FORTUNE — As in most job interviews, Janet Yellen on Thursday didn’t say anything all that controversial in her appearance before the Senate Banking Committee. Her confirmation hearings to be the next Fed chair were by-the-book and informative, but ultimately unsurprising.

Senators got a better sense of what kind of monetary leader she will be — specifically, her views on the central bank’s bond-buying program to stimulate the economy. It’s a question on the minds of most investors whenever policymakers at the Fed meet. However, the senators seemed to be more interested in questions about how Yellen would regulate America’s biggest banks.

MORE: More Americans ditch their passports

It’s easy to see why. The public already knows more about how Yellen views monetary policy than her take on financial regulation. Yellen is known to focus more on jobs than most central bank policymakers, and she has consistently supported the Fed’s unprecedented stimulus program, having supported three rounds of bond buying under current Fed Chair Ben Bernanke.

At Thursday’s confirmation hearing, Yellen did not say when the central bank will scale down its $85 billion a month asset buying program, known as quantitative easing (or QE). However, she did say that while the job market has improved, it still has plenty of problems, pointing to the millions that have remained jobless for six months or longer. The U.S. unemployment rate in October was 7.3%, but Yellen acknowledged that by broader measures, and if the long-term unemployed were counted, the rate is close to around 10%.

“It’s important not to remove support especially when the recovery is fragile,” said Yellen, who later reminded that the Fed can’t continue QE forever.

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Investors may not have gotten a clear answer on QE, but anyone who takes issue that America’s banks are far too big probably got what they wanted to hear.

“Addressing too big to fail has to be among the most important goals of the post crisis period,” Yellen said.

Since the financial crisis, new regulations under the 2010 Dodd-Frank law have sought to limit risky trading and such to shield the economy from another financial crisis. But as Stephen Gandel of Fortune has pointed out, at least one of the widely recognized causes of the financial crisis is still around: Banks are too big; they are bigger than they were five years ago right before the crisis.

Yellen said “we are making progress” on Dodd Frank, but added: “I would say one of our top priorities now is ramping up our monitoring of the financial system.”

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