Bessent calls for internal review of Fed and 'deeper reforms' of big bank rules

Yahoo

6 days ago

Treasury Secretary Scott Bessent on Monday took aim at both the Federal Reserve and the rules the Fed enforces as a supervisor of big banks.
He said on X that there should be a review of the central bank's $2.5 billion renovation of its headquarters and a review of its non-monetary policy operations, arguing that 'significant mission creep and institutional growth have taken the Fed into areas that potentially jeopardize the independence of its core monetary policy mission.'
He posted the comments on the same day he spoke at the opening of a Fed conference designed to review the capital framework governing big banks. That conference continues Tuesday.
There he made a separate call for 'deeper reforms' of the regulations governing the nation's biggest banks, arguing that 'outdated capital requirements' impose 'unnecessary burdens on financial institutions.'
Specifically he suggested that regulators scrap a dual capital structure proposed during the last administration but never enacted, calling it 'flawed.'
"We need deeper reforms rooted in a long-term blueprint for innovation, financial stability, and resilient growth," Bessent said in his remarks.
Bessent is among the candidates being considered to replace Jerome Powell as chair of the central bank once Powell's term expires in 10 months.
President Trump and other White House officials have been hammering Powell and the Fed over the slow pace of interest rate cuts, with none being made so far in 2025, as well as the costs involved in the Fed's $2.5 billion renovation of its headquarters complex along the National Mall in Washington.
Bessent joined that chorus on Monday.
'While I have no knowledge or opinion on the legal basis for the massive building renovations being undertaken on Constitution Avenue, a review of the decision to undertake such a project by an institution reporting operating losses of more than $100 billion per year should be conducted,' Bessent said in his Monday post on X.
Trump has considered firing Powell and has encouraged him to resign. Powell has said repeatedly that he intends to serve out his term as chair and that his removal is not permitted by law.
Bessent on Monday expressed support for the Fed's independence on the subject of monetary policy, saying that autonomy is 'a jewel box that should be walled off' and that the Fed's independence 'is a cornerstone of continued US economic growth and stability.'
But the White House has also made it known that it wants greater control over the Fed's operations outside monetary policy, including the supervision of the nation's biggest banks.
Bessent earlier this year said he would be coordinating a broad re-examination of financial regulation, with an eye toward making it easier for banks to lend as a way of boosting the US economy. And he said again Monday that the Treasury would be playing a central role.
"The department will break through policy inertia, settle turf battles, drive consensus, and motivate action to ensure no single regulator holds up reform," Bessent said of the Treasury.
"We need deeper reforms rooted in a long-term blueprint for innovation, financial stability, and resilient growth."
US regulators have already proposed one of the most dramatic rollbacks of bank capital rules since the 2008 financial crisis, saying last month they wanted to alter the so-called enhanced supplementary leverage ratio (eSLR).
Banks have complained that this ratio penalizes them for holding lower-risk assets such as Treasury bonds.
Doing away with it "should simplify bank capital management" and "that will bring down costs and help banks more effectively manage their capital levels," TD Securities analyst Jaret Seiberg said in a Tuesday morning research note.
Even with proposed curtailing this leverage ratio, large banks would still be bound by their risk weighted capital constraints, Seiberg said.
"This is not going to produce material capital relief for banks," Seiberg added.
More regulatory changes for big banks could still be on the way.
Michelle Bowman, the Fed's top banking regulator appointed by Trump, said in a speech last month that revisiting the eSLR requirement is just the start of broader capital rollback considerations.
"More work on capital requirements remains, especially to consider how they have evolved and whether changes in market conditions have revealed issues that should be addressed," she said.
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