Treasury Secretary Scott Bessent calls for a radical re-imagining of the regulatory paradigm for our country’s banks. He calls for the Federal Reserve to be removed from its obligations in this space. Bessent’s comments come as the Federal Reserve steps up its scrutiny of financial industries. He asserts that this deeper engagement constitutes an overreach.
The Federal Reserve has voluntarily accumulated regulatory responsibilities over the decades. This was particularly crucial during economic emergencies such as the Great Depression and the Great Recession. Bessent discusses how the central bank’s role as regulator and lender creates conflicts. These real or perceived conflicts of interest undermine both accountability and independence.
“The Fed now regulates, lends to and sets the profitability calculus for the banks it oversees, an unavoidable conflict that blurs accountability and jeopardizes independence,” – Scott Bessent
In an interview with Fox Business on August 27, Bessent elaborated on his concerns regarding the concentration of regulatory power within the Federal Reserve. He emphasized the need for an independent review of the entire institution, covering aspects such as monetary policy, regulation, and communications.
Bessent’s position aligns with Federal Reserve Chairman Jerome Powell’s previous statements regarding the structure of bank supervision. As mentioned, Powell has publicly raised red flags about making one member of the Federal Reserve’s otherwise independent Board of Governors vice chair for bank regulation. He thinks this arrangement can foster greater volatility.
“Putting it all in a single person, admittedly, just to recommend to the board can lead to some volatility … and that’s not great for the institutions we want to regulate,” – Powell
In February, Powell told lawmakers that they had begun a “top-to-bottom” review of capital requirements for the nation’s largest banks. This remarkable and admirable deed came at the instigation of a new appointee whom President Donald Trump had raised up earlier this year. This ongoing review underscores the Fed’s commitment to ensuring efficient banking rules, which Powell maintains are essential for maintaining a safe and sound banking system.
As Powell stated, the purpose of these regulations should be to make life easier for the Americans that the Federal Reserve serves. It’s high time for Congress to reconsider the Federal Reserve’s role, says Bessent. She challenges them to acknowledge this reality and do the hard work of making needed course corrections.
Regardless of the direction it takes, Bessent’s advocacy has brought attention to an important conversation about the appropriate balance of power in financial regulation. He is calling for a deeper, broader reassessment. Next up, we mark the next chapter in this dialogue as it is sure to inform upcoming legislation on the Federal Reserve’s involvement in banking supervision.