Written by The Banking Post
U.S. Treasury Secretary Scott Bessent has called for sweeping reforms to the nation’s financial regulatory system, describing it as outdated and overly burdensome. Speaking at the opening of a Federal Reserve regulatory conference on Monday, Bessent criticized excessive capital requirements for banks, arguing they stifle lending, hinder economic growth, and push financial activity into the less-regulated non-bank sector.
“We need deeper reforms rooted in a long-term blueprint for innovation, financial stability, and resilient growth,” Bessent said in his prepared remarks.
The Trump administration is backing a broad deregulatory agenda, aiming to ease rules governing financial institutions—including capital standards—with the goal of unlocking innovation and accelerating economic expansion.
Bessent took aim at what he termed a “reactionary approach” by regulators, which he said has led to complex and counterproductive rules that undermine U.S. competitiveness. He also emphasized the Treasury’s intent to play a more assertive role in driving regulatory reform, including efforts involving the Federal Reserve.
“To that end, the department will break through policy inertia, settle turf battles, drive consensus, and motivate action to ensure no single regulator holds up reform,” he stated.
Scrapping the Dual Capital Proposal
Central to Bessent’s critique was a Biden-era proposal introduced in July 2023 that would have required banks to meet the higher of two capital requirement calculations. Though never enacted, the framework was designed in response to the collapse of Silicon Valley Bank and other institutions that year. Critics, including Bessent, argue the proposal lacked a sound methodological basis and would have unnecessarily inflated capital buffers.
“This dual-requirement structure did not derive from a principled calibration methodology,” Bessent said. “It was motivated simply to reverse-engineer higher and higher capital aggregates.”
He warned that the proposal would have entrenched outdated capital standards, making them the binding floor for many large banks and undermining efforts to modernize the regulatory framework.
Relief for Community Banks
Bessent also advocated for capital relief measures that extend beyond large institutions to include smaller, community banks. He proposed allowing banks not currently subject to modernized capital rules the option to opt in, potentially reducing their capital obligations.
“This would result in a meaningful reduction in capital for those banks,” he noted.
While reaffirming the Treasury’s commitment to financial safety, stability, and consumer protection, Bessent stressed that smarter regulation does not equate to weaker oversight.
“Rationalizing and tailoring regulation does not have to amount to regulatory weakening,” he concluded.
