Yellen Says The US And China Will Conduct More Financial Shock Exercises


Treasury Secretary Janet Yellen announced on Monday that the United States and China are strengthening their cooperation on financial stability concerns. 

Following a recent exercise in handling a significant bank failure, more financial shock simulations are anticipated.

Significant Consequences

Yellen delivered a harsh warning to Chinese banks at the end of a four-day meeting in China, stating that enabling transactions giving material support or dual-use commodities to Russia for its military effort in Ukraine would have “significant consequences.”

Friday’s closing gains in U.S. stocks came from a solid jobs report that supported the idea that the economy is still doing well, even as it also hinted that the Federal Reserve would postpone lowering interest rates.

The financial stability exercises, according to Yellen, were created by a working group on U.S.-China finance that was established the year before she made her initial visit in an effort to mend economic relations.

The group last convened in Beijing in January, with leaders from the People’s Bank of China and the U.S. Treasury leading the way.

“Just like military leaders need a hotline in a crisis, American and Chinese financial regulators must be able to communicate to prevent financial stresses from turning into crises with tremendous ramifications for our citizens and the international community,” Yellen said at a press conference.

Temporary Suspended Deals

Source: Yahoo finance

At the central bank’s Beijing headquarters on Monday, she spoke with PBOC Governor Pan Gongsheng about matters pertaining to financial stability. The new drills will happen in April or May, according to a senior U.S. Treasury official who spoke on the phone while remaining anonymous.

One would address the risks of operational resilience coordination brought on by a significant external shock, such a new pandemic, a bank hack, or a natural disaster, while the other would address the effects of climate change risks on the insurance system.

When a ransomware attack on the U.S. branch of the Industrial and Commercial Bank of China (ICBC) interrupted its systems and temporarily suspended deals worth around $9 billion in the U.S. Treasury debt market last November, the risks associated with cross-border external shocks came into sharp relief.

The Treasury has long conducted these types of simulations with other nations with sizable financial systems, including Europe, Britain, and Japan. The U.S. and China, according to the official, have not yet engaged in similar exercises and conversations.

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