U.S. Department of the Treasury outlines agenda to expand its role in bank regulation and revisit supervision, capital and liquidity rules

In remarks to the American Bankers Association, Treasury Secretary Scott Bessent said the U.S. Department of the Treasury intends to play a greater role in bank regulation to push for regulation grounded in clear statutory mandates, cost-benefit discipline, consistent application, and greater supervisory accountability, with a stated emphasis on reducing undue burdens on community banks. The agenda previewed includes more tailored requirements for the community bank model, including reviewing the Consumer Financial Protection Bureau’s recent rules and supervisors’ expectations around internal controls such as third-party risk management and information security. Bessent also called for supervision to refocus on material financial risks, with improvements to examination procedures, monitoring of examiner compliance, and more realistic avenues to appeal supervisory findings, and floated defining “unsafe and unsound” by rule using more objective measures; he added that regulators have been asked to remove “reputational risk” as a basis for supervisory criticism. On prudential standards, the speech set out a “ground-up” approach to modernizing regulatory capital rather than starting from the July 2023 U.S. proposal to implement the Basel Committee’s Endgame standards, and raised the possibility of lower capital requirements for mortgages and other exposures, including an opt-in approach for banks not mandatorily subject to modernized requirements; it also pointed to review of the stress capital buffer sizing process and noted regulators are developing a proposal to ensure leverage capital operates as an appropriate backstop. Treasury also plans to reassess the liquidity framework, including the role of the discount window and the Federal Home Loan Banks in internal stress testing and contingency funding plans, and to examine whether liquidity buffers are being treated as minimums rather than drawdownable buffers. Beyond bank prudential policy, Treasury flagged plans to advocate for an AML/CFT framework more explicitly focused on national security priorities and higher-risk areas, to work with Congress on deposit insurance reforms including potentially higher limits for business payment accounts, to incorporate lessons from the 2023 bank failures into failed-bank resolution (including reducing the Federal Deposit Insurance Corporation’s losses in auctions), and to review regulatory impediments affecting blockchain, stablecoins, and new payment systems.