Janet Yellen’s confirmation as treasury secretary is bound to have a significant impact on a range of issues, including but not limited to:
- Coronavirus and spending: PPP relief, and the potential for increased synthetic fraud
- China: Changes in sanctions, particularly related to China, Russia and North Korea
- Money laundering, and combatting terrorism and international financial crime
Janet Yellen has been confirmed as the first ever female US treasury secretary in a Senate vote. She succeeds Steven Mnuchin. Janet Yellen led the Federal Reserve under Obama. We know a lot about her policies under Obama – she focussed on employment rather than inflation and promoted economic activity as far as possible.
Treasury Secretary Role
She now as Treasury Secretary has jurisdiction over OFAC and the key foreign policy weapon of sanctions in addition to the budget. Steven Mnuchin’s liaised closely with FATF regarding holding high-risk jurisdictions to account, virtual assets, terrorist financing and countering weapons of mass destruction.
China and International Sanctions
Biden’s policies on China seem to be a continuation of Trump’s policies. Sanctions became a critical part of the foreign policy arsenal under Trump and Yellen will be expected to continue to oversee OFAC’s prosecution of this policy.
Policy on Spending and Paycheck Protection Program (PPP) loan
PPP relief has been a key policy under Trump. Yellen argued in her confirmation hearing that a further burst of government spending is needed to alleviate human suffering, shorten the recession, and head off long-term “scarring” to the economy
The $659 billion Small Business Administration (SBA) program, which launched in April 2020, aimed to help small businesses with fewer than 500 employees by offering forgivable PPP loans up to $10 million that covered two months of payroll and other expenses, such as rent and utilities, during the start of the Covid-19 pandemic.
PPP Fraud Rates
“The percentage of allegedly fraudulent loans among the PPP loans of the major internet banks and fintech lenders is nearly 48 times the percentage among the PPP loans of these 14 large banks”, according to the Bank Policy Institute. Those loans that were fraudulent were fraudulent because they were new customers. The BPI suggests that “most allegedly fraudulent loans at community and midsize banks were to borrowers with no prior relationship with the bank, including loans originated through fintech-related marketplace platforms. Thus, another important takeaway from our analysis is the importance of a prior relationship with a prospective borrower for mitigating fraud risk in online, small business lending.”
Treasury vs OCC
The U.S. regulatory environment has been divided – the Treasury has historically been hostile, whereas the OCC has been pro-virtual assets. The OCC is an independent branch of the Treasury Department and regulates all national banks, as well as federal branches of foreign banks. Former Ripple advisor Michael Barr is reportedly expected to head the Office of the Comptroller of the Currency (OCC) under Joe Biden’s administration, replacing Brian Brooks, a former Coinbase lawyer.
Virtual Assets and Bitcoin
Janet Yellen suggests ‘curtailing’ cryptocurrencies such as Bitcoin, saying they are mainly used for illegal financing. Sen. Maggie Hassan asked Yellen during her confirmation hearing on Tuesday about the dangers of terrorists using cryptocurrencies. Janet Yellen said, “you’re absolutely right that the technologies to accomplish this change over time, and we need to make sure that our methods for dealing with these matters, with terrorist financing, change along with changing technology,”.
The European Central Bank President Christine Lagarde was also aggressive on Bitcoin as a vehicle for terrorist financing, and last week that Bitcoin had been used for some “totally reprehensible money-laundering activity.” This is a continuation of Mnuchin’s policy of not allowing “cryptocurrency to become the equivalent of secret numbered accounts.”