Treasury Secretary Bessent Outlines Strategic Vision for Financial Regulatory Reform at Federal Reserve Capital Conference
In prepared remarks delivered at the Federal Reserve Capital Conference, U.S. Treasury Secretary Scott Bessent outlined a sweeping and assertive vision for reorienting the nation's financial regulatory architecture. Framing the speech as a call to action, Bessent emphasized the urgent need to move beyond reactive, fragmented regulation and toward a coordinated, long-term blueprint centered on economic growth, innovation, and national security.
A Blueprint for Reform: “From Reflex to Strategy”
Secretary Bessent’s remarks built on prior statements calling for a “fundamental reset” of financial regulation. He criticized what he described as a pattern of “regulation by reflex,” wherein regulatory responses emerge reactively in the wake of crises rather than proactively to prevent them. In his view, this approach has led to burdensome and misaligned regulatory structures, particularly for community banks and innovative financial institutions.
Treasury, Bessent said, intends to fill the vacuum of strategic leadership in financial regulatory policy by coordinating interagency consultations, driving consensus, and asserting policy direction that prioritizes long-term American interests. “The Treasury Department is perfectly positioned to provide that leadership,” he stated, noting its unique role across domestic economic policy, financial stability, and national security.
Immediate Reform Priorities
The Secretary highlighted several initial reform actions already underway:
Proposed recalibration of leverage capital requirements
Proposed rescission of the 60,000-word Community Reinvestment Act rule
Curtailment of “reputation risk” as a supervisory metric
Launch of BSA/CFT modernization efforts
Refocusing of supervision on material financial risks
He emphasized that while these steps represent progress, they must be part of a more comprehensive transformation aligned with national economic objectives.
Key Principles Moving Forward
Bessent laid out a framework to guide the next phase of reform:
Re-center regulation on Main Street, not Wall Street
Preserve the viability of community banks
Guard against politicized de-banking of individuals or entities
Reject international standards misaligned with U.S. interests
Foster innovation both inside and outside traditional financial channels
Drive alignment between financial crime enforcement and national security goals
Address foundational issues including digital asset regulation, housing finance, and capital support for U.S. manufacturing
He underscored that regulatory reform must not equate to regulatory weakening. Instead, he called for rationalization and tailoring of rules consistent with statutory mandates and risk-based oversight.
Capital Reform: A Central Focus
Secretary Bessent directed particular attention to the structure and design of the U.S. regulatory capital framework, stating that outdated capital requirements misaligned with risk are stifling growth and pushing lending into less regulated channels.
He criticized the dual-requirement structure proposed in July 2023—which would have subjected banks to both a modernized and a legacy capital framework, using the higher of the two as binding—as lacking a principled calibration and serving merely to “reverse-engineer higher and higher capital aggregates.” He urged bank regulators to abandon that approach and adopt a simpler, more rational structure.
Bessent also proposed allowing smaller institutions to opt into modernized capital requirements where appropriate, highlighting that such flexibility would benefit community banks and mitigate the uneven regulatory burden imposed by legacy frameworks.
A Recommitment to Community Banks and Innovation
The Secretary closed by reiterating his support for the Federal Reserve’s willingness to consider modernization and by affirming the central role of community banks in the American financial system. “We will ensure the big questions of the day are answered consistent with America’s long-term interests,” he concluded.
Implications for Market Participants
Secretary Bessent’s remarks mark a decisive shift toward more centralized, strategic policymaking within the federal regulatory landscape. Treasury’s increased leadership role may result in:
Greater interagency alignment around capital reform and risk-based supervision;
A more flexible regulatory environment for community and mid-sized banks;
Renewed scrutiny of international frameworks and their domestic applicability;
Evolving approaches to emerging sectors, including digital assets and nonbank lending.
Market participants should expect regulatory proposals and guidance in the coming months that reflect these themes. Institutions affected by capital requirements, BSA/AML rules, and innovation-driven business models should closely monitor these developments and consider engagement opportunities during the rulemaking process.
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