By David Lawder and Andrea Shalal
WASHINGTON (Reuters) -U.S. Treasury Secretary Scott Bessent on Monday known as for deeper reforms of what he known as an antiquated monetary regulatory system and mentioned regulators ought to contemplate scrapping a “flawed,” Biden-era proposal for a twin capital requirement construction for banks.
Talking initially of a Federal Reserve regulatory convention, Bessent mentioned extreme capitalization necessities had been imposing pointless burdens on monetary establishments, decreasing lending, hurting progress and distorting markets by driving lending to the non-bank sector.
“We want deeper reforms rooted in a long-term blueprint for innovation, monetary stability, and resilient progress,” Bessent mentioned in ready remarks.
The Trump administration is pursuing a broad reform agenda aimed toward reducing guidelines governing monetary establishments, together with capital necessities, arguing that such actions will enhance financial progress and unleash innovation.
Bessent mentioned regulators have for too lengthy pursued a “reactionary method” that has weakened competitiveness and led to byzantine rules.
The Treasury chief, who earlier on Monday known as on the Fed to overview its operations to safeguard its financial coverage independence, mentioned the Treasury would take a stronger function in driving reform efforts by regulators, together with the Fed.
“To that finish, the division will break via coverage inertia, settle turf battles, drive consensus, and encourage motion to make sure no single regulator holds up reform,” Bessent mentioned of the Treasury.
REDUCING CAPITAL REQUIREMENTS
Banking regulators ought to contemplate abandoning the twin construction proposed in July 2023, however by no means enacted, that may have seen banks adjust to the upper of two totally different strategies of measuring their threat capital necessities.
The proposal, which got here after the high-profile failure of Silicon Valley Financial institution and different establishments in 2023, would have considerably elevated the quantity of capital banks wanted to put aside for potential losses. It drew intense opposition from the business.
“This dual-requirement construction didn’t derive from a principled calibration methodology. It was motivated merely to reverse-engineer larger and better capital aggregates,” Bessent mentioned. “It additionally was at odds with capital reform as a modernization mission as a result of it could have preserved the antiquated capital necessities because the binding ground for a lot of, maybe most, massive banks.”
Bessent additionally known as for regulatory capital aid not only for massive banks but in addition on the smaller, group financial institution stage. One resolution, he mentioned, could be to permit any financial institution not topic to modernized capital necessities a option to choose in.
