Treasury Secretary Scott Bessent Calls For Fundamental Reset Of Federal Reserve, Overhaul Of ‘Antiquated’ Bank Capital Norms

Treasury Secretary Scott Bessent said on Monday that the Federal Reserve needs a fundamental reset to become more proactive rather than reactive, thereby preventing dangerous spillovers from occurring.

He expressed the view while delivering prepared remarks at the Federal Reserve Capital Conference.

The reset should tie financial regulation to an “overarching strategic vision for the financial system,” he said, adding that “We need to instead be more explicit about our vision for the financial system.”

Bessent said, “Defining a path forward requires leadership with a broad perspective and coordination across the whole of government.”

“The Treasury Department is perfectly positioned to provide that leadership.”

The Trump official stated that bank regulators must continue to fulfill their statutory mandates: “maintaining safety and soundness, protecting consumers, and mitigating risks to financial stability.”

At the same time, they should convene “interagency” consultations to define a strategic policy direction.

The administration under President Donald Trump has been at odds with Fed Chair Jerome Powell over monetary policy. While Trump has called for steep cuts to the Fed funds rate, currently at 4.25%-4.50%, Powell and his fellow Fed officials have favored a “wait-and-watch” approach, particularly due to the uncertainty engendered by Trump’s tariff moves.

The market has experienced bouts of volatility amid the standoff, although it has mainly remained resilient. The S&P 500 Index, a broader measure of U.S. stock market performance, closed at a record high on Monday.

The Invesco QQQ Trust (QQQ) and the SPDR S&P 500 ETF (SPY), exchange-traded funds tracking the Nasdaq 100 and the S&P 500 indices, have gained 10.6% and 7.9%, respectively, for the year.

The SPY and QQQ have been among the top five most active stocks on Stocktwits as of late Monday.

Bessent also called for the overhaul of outdated capital requirements, which impose unnecessary burdens on financial institutions. 

While noting that the July 2023 proposal calls for banks to be subject to two sets of capital requirements, Bessent said it was “at odds with capital reform as a modernization project because it would have preserved the antiquated capital requirements as the binding floor for many, perhaps most, large banks.”

“Bank regulators should consider abandoning this flawed dual-requirement structure.”

He also suggested a solution of offering each bank not subject to the modernized requirements the choice to opt in.

The Invesco KBW Bank ETF (KBWB) has added 14% so far this year.

Separately, Bessent shared excerpts from his CNBC interview in a post on X, in which he said, “the Fed’s conduct of monetary policy “is a jewel box” that should be walled off to preserve its independence.”

At the same time, he called for the central bank to conduct an exhaustive internal review of its non-monetary policy operations. 

According to Bessent, the Fed is “threatened by persistent mandate creep into areas beyond its core mission, provoking justifiable criticism that unnecessarily casts a cloud over the Fed’s valuable independence on monetary policy.”

He also waded into the recent controversy over the alleged improprieties in the renovation of the Federal Reserve headquarters. 

“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,” he said.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Read Next: GameSquare Ignites Retail Buzz With $250M Crypto Strategy And NFT Yields