Treasury Secretary Bessent Calls for Review of Federal Reserve

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.

This is the way.

Read my full remarks here: https://t.co/w8664gdEE4

— Treasury Secretary Scott Bessent (@SecScottBessent) July 22, 2025

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he made a separate call for “deeper reforms” of the regulations governing the nation’s biggest banks, arguing that “outdated capital requirements” impose “unnecessary burdens on financial institutions.”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.
Treasury Secretary Bessent explains: Today in a CNBC interview, I called for a review of the Federal Reserve. It is my belief that the central bank should conduct an exhaustive internal review of its non-monetary policy operations. Significant mission creep and institutional growth have taken the Fed into areas that potentially jeopardize the independence of its core monetary policy mission. As I have said many times, the Fed’s conduct of monetary policy “is a jewel box” that should be walled off to preserve its independence. This independence is a cornerstone of continued U.S. economic growth and stability. However, this autonomy 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…. The Fed does regular reviews of its monetary policy framework. I would urge Fed leadership to similarly undertake, publish and implement a comprehensive institutional review across its entire mission to buttress its credibility. It will go a long way towards strengthening the Fed’s credibility with the American people on its core mission of guiding our nation’s monetary policy (Bessent). The CNBC interview: (CNBC).

US Treasury chief calls for Fed ‘internal review’

By AFP, July 21, 2025:

WASHINGTON: US Treasury Secretary Scott Bessent called Monday for the Federal Reserve to conduct an “exhaustive internal review of its non-monetary policy operations,” accusing the central bank of “significant mission creep.”

In a lengthy post on X, Bessent sought to clarify remarks he made in a CNBC interview earlier in the day, in which he said “what we need to do is examine the entire Federal Reserve institution and whether they have been successful.”

The remark came in response to being asked about firing Fed Chair Jerome Powell, whom President Donald Trump has repeatedly attacked in recent weeks for not cutting interest rates.

The White House has said that Trump has no plans to fire Powell ahead of his term’s end in May 2026 – a legally contentious move that would bring into question the Fed’s independence.
However, Trump and other Republican allies have recently zoomed in on the Fed’s US$2.5 billion headquarters renovation project as a possible avenue for his ousting.

Bessent, in his post on X, said that the Fed’s “independence is a cornerstone of continued US economic growth and stability.”

“However, this autonomy is threatened by persistent mandate creep into areas beyond its core mission,” he said, without specifying which policy areas.

He called for a review of the over-budget renovation project, while noting he has “no knowledge or opinion on the legal basis for the massive building renovations.”

Bessent did not comment Monday on a Wall Street Journal report over the weekend that he had privately set out his case to Trump for why the president should not try to fire Powell.

The Journal reported that Bessent’s reasons focused on issues including effects on the economy and markets, alongside the likely political and legal obstacles Trump would encounter.

Bessent told CNBC there has been “very little, if any, inflation” from Trump’s wide-ranging tariffs so far, and suggested that central bankers appear unable “to break out of a certain mindset.”

Since returning to the presidency in January, Trump has imposed a 10 per cent levy on goods from nearly all trading partners, with higher rates separately on imports of steel, aluminium and autos.

While the effects on consumer inflation have been muted so far, given that Trump has backed off or postponed the harshest among his proposed measures, economists expect that data over the coming months will give a better idea of the tariffs’ impact.

Here are Secretary Bessent’s full remarks:

Treasury Secretary Scott Bessent Remarks at the Federal Reserve Capital Conference

July 21, 2025

As prepared for delivery

Good evening, it’s an honor to be with you tonight.

Let me first express my appreciation to Vice Chair Bowman for arranging tomorrow’s conference. The Vice Chair has certainly hit the ground running, and we are all impressed by her early results.

I share with her a strong view on the urgency of reform. And I especially agree with the high priority she has given as a governor on the Federal Reserve Board to issues affecting our community banks.

In past remarks, I have made clear that we need a fundamental reset of financial regulation. And the Treasury Department is committed to playing an active role in this effort. That’s why earlier this year, I laid out guiding principles to build a financial system that delivers for both Wall Street and Main Street.

In the months since, we have begun delivering on that promise.

The bank regulators have proposed a recalibration of leverage capital requirements, ended the use of politicized reputation risk, proposed to rescind a byzantine 60,000-word Community Reinvestment Act (CRA) rule, launched work to focus supervision on material financial risks, started an interagency process on BSA/CFT reforms, and begun the effort to modernize our regulatory capital framework.

These first steps are chipping away at years of regulatory accretion. But isolated measures are not enough. We need deeper reforms rooted in a long-term blueprint for innovation, financial stability, and resilient growth.

Despite bank regulators’ significant influence on our economy, up until now, financial regulation has not been nested in a broader strategic vision for the financial system.

Instead, we have seen regulation by reflex. Rather than preempting crises, regulators all too often react to them after the fact. They play the role of a hazmat cleanup team instead of preventing dangerous spillovers in the first place. This is especially true in the case of supervisory failures, where regulators often overcompensate by piling rule on top of rule, based on an incomplete understanding of the larger costs and benefits to society. This reactionary approach can generate regulations at odds with our domestic and international priorities.

Some argue that in the past, regulatory weakening occurred when regulators failed to keep pace. And yet, the financial regulators have not, up to now, kept pace with digital assets or comprehended how their regulation by reflex was undermining the community bank model. Post-mortems to recent crises have been more self-serving exercises designed to support longstanding political agendas rather than honest, searching assessments about how to improve the system.

Rather than reflexively regulate anything that hits the headlines, we need to instead be more explicit about our vision for the financial system.

Defining that vision requires value judgments. And so, it cannot be a purely technocratic exercise. Instead, 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.

Since Secretary Hamilton’s Assumption Plan, Treasury has worked to articulate a coherent vision for our financial system. Since Secretary Chase, Treasury’s Office of the Comptroller of the Currency has been responsible for our national banking system. And since our country’s founding, Treasury has led emergency responses to every major financial crisis.

Treasury also has a broad remit to shape a vision for our financial system. Our domestic mandate includes fostering economic growth and stability. We represent America’s economic interests abroad. And we strengthen national security by protecting the integrity of the financial system.

Consistent with that longstanding practice, I intend for Treasury to drive financial regulatory policy that puts American workers first, prioritizes growth, safeguards financial stability, and protects our national security.

To be clear, the bank regulators must continue to carry out their statutory mandates—maintaining safety and soundness, protecting consumers, and mitigating risks to financial stability. Rationalizing and tailoring regulation does not have to amount to regulatory weakening.

But in parallel, Treasury will convene interagency consultations to define a strategic policy direction.

To that end, Treasury will encourage bank regulators to consider how proposed rules will impact growth.

We will center financial regulation on Main Street, not Wall Street.

We will protect the viability of our community banks.

We will be vigilant against debanking of customers based on religious or political views on either side of the aisle.

We will reject international standard setting that does not advance America’s interests.

We will support innovation both within and outside the financial system.

We will drive alignment between our illicit finance program and our national security priorities.

And we will ensure the big questions of the day are answered consistent with America’s long-term interests. This includes the regulation of digital assets, the future of housing finance, and financial sector support for the onshoring of US manufacturing.

In all these efforts, Treasury’s most important contribution might simply be to reinforce the urgency of reform. To that end, the department will break through policy inertia, settle turf battles, drive consensus, and motivate action to ensure no single regulator holds up reform.

Which brings me to the topic of tomorrow’s conference.

We need to take a closer look at regulatory capital requirements.

Outdated capital requirements on some exposures are misaligned with actual risk, imposing unnecessary burdens on financial institutions. Excessive capitalization, for example, reduces bank lending. This stymies growth and distorts market structure in ways that increase risk. How? By driving lending out of the regulated banking system to nonbank intermediaries.

I look forward to seeing a proposal that addresses this and other known deficiencies in our antiquated capital framework.

At the same time, I hope that the proposal will simplify and rationalize the framework. On that note, there is an incredibly consequential—albeit quite technical—structural issue that regulators should address early on.

Under the July 2023 proposal, a bank would have been subject to two sets of capital requirements—first, a modernized set, and second, a legacy set based largely on today’s current “standardized approach”—with the greater of the two being the binding requirement.

This dual-requirement structure did not derive from a principled calibration methodology. It was motivated simply to reverse-engineer higher and higher capital aggregates. It also 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.

Modernizing regulatory capital likely would mean reduced capital requirements for mortgage loans and some other exposures that are core to the community bank model. We cannot give only large banks the benefit of these reduced requirements, as actually contemplated by the last administration. One possible solution would be to give each bank that is not subject to the modernized requirements the choice to opt in. This would result in a meaningful reduction in capital for those banks.

I will close by reiterating my support for the Fed’s open-mindedness on the need for regulatory modernization. I am grateful for economic policymakers at the Fed who understand the urgency of reorienting financial regulation and the critical need to preserve a central role for community banks.

It is promising to see so much interest in this important topic, and I look forward to continuing to work with you all on regulatory capital reform.

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