The Treasury Department intends to play a greater role in bank regulation with more regulatory tailoring for community banks, which could include exempting them from some requirements entirely, Treasury Secretary Scott Bessent said today at the American Bankers Association Washington Summit.
Addressing bankers from across the nation, Bessent said that over the past few years, Wall Street has grown wealthier than ever before, “but for the next four years, it’s Main Street’s turn.” He laid out a Trump administration agenda “to get capital to Americans who need it most by getting bureaucracy out of the way.”
“The Treasury Department intends to drive more tailored regulation to the community bank model,” Bessent said. “There might be strong cases for categorical exemptions of community banks from some regulations. In particular, we will be taking a close look at the [Consumer Financial Protection Bureau’s] recent rules and the bank regulators’ expectations relating to internal controls. This will include, for example, third-party risk management and information security.”
The Treasury Department also plans to change bank supervision “through improvements to examination procedures, enhanced monitoring of examiners’ compliance with those procedures, and more realistic processes for appealing supervisory findings.” Bessent said. “Perhaps the most consequential step would be to define ‘unsafe and unsound’ by rule, using more objective measures rooted in financial risk.”
Rethinking Basel and other reforms
Bessent said one goal for the current administration is to modernize “outdated” capital requirements. That was the original intent of the Basel III endgame standards, but a Biden administration push to implement the standards was not the right starting point, he said.
“We need to take a different approach,” Bessent said. “We should not outsource decision making for the United States to international bodies. Instead, we should conduct our own analysis from the ground up to determine a regulatory framework that is in the interests of the United States. To the extent that the endgame standards can provide inspiration, we could borrow selectively from them. But this should only be done to the extent that we can independently validate the underlying rationale and then make that rationale available for public comment.”
As for other policy initiatives, Bessent said regulators and administration officials will:
- Develop a proposal “to ensure that leverage capital functions as an appropriate backstop.”
- Revisit the role of the Federal Reserve discount window and the Federal Home Loan Banks in providing liquidity, “including whether there are opportunities to clarify the role of these funding sources in internal liquidity stress testing and the supervision of banks’ contingency funding plans.”
- Advocate for changes to the anti-money laundering/countering the financing of terrorism framework “to truly focus on national security priorities and higher-risk areas and explicitly permit financial institutions to de-prioritize lower risks.”
- Work with Congress to consider deposit insurance reforms, including potentially higher limits for business payment accounts.
- Consider “enhancements” to failed bank resolution to incorporate the lessons learned from 2023 bank failures, including efforts to reduce the FDIC’s losses in auctions of failed banks.
- Take a close look at regulatory impediments to blockchain, stablecoins and new payment systems.
