In a speech delivered at the Economic Club of New York last week, US Treasury Secretary Scott Bessent emphasized the importance of regulatory and supervisory coordination and called for an overhaul of the post-Financial Crisis regulatory framework.
"The Trump administration aims to make financial regulation more efficient, effective, and appropriately tailored," Bessent said. “Our financial regulatory agenda must start with a fundamental refocusing of supervisors' priorities. Leadership must drive a culture that focuses on material risk taking, rather than [box checking].”
Bessent pointed to the Spring 2023 Banking Turmoil as evidence of this. The Fed's own review of the bank failures, Bessent recounted, found that its supervisors did not fully appreciate, or appropriately act upon, the growing vulnerabilities at Silicon Valley Bank as it became larger and more complex.
"We need our financial regulators singing in unison from the same song sheet," Bessent added. This does not mean that agencies must be consolidated, he clarified, but that they must coordinate through the Treasury to ensure they work in parallel with each other and the industry.
"Our nation's largest banks' ... role as financial intermediaries has been weighed down by unduly burdensome regulatory requirements and a broken supervisory culture," Bessent argued. “Backward looking policies in response to an undercapitalized system predating the global financial crisis almost two decades ago should not drive today's approach.”
Bessent lamented that community banks have been hamstrung by burdensome regulation and supervision, including "unproductive" reporting requirements not rooted in material financial risks. "Regulatory rating systems have suffered from mission drift as regulators apply subjective standards," Bessent said. "Productive and synergistic mergers are often slowed due to immaterial supervisory issues."
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