WASHINGTON — Treasury Secretary Scott Bessent used his written testimony Thursday to the Senate Banking Committee to signal a sharp shift in how federal regulators should oversee banks and credit unions, arguing that recent supervisory priorities went too far beyond traditional safety-and-soundness concerns and contributed to instability in 2023.
In presenting the Financial Stability Oversight Council’s 2025 annual report, Bessent said the Administration wants regulation that supports growth rather than constrains lending by chasing what he called non-core risks.
Bessent criticized prior regulators for centering exams on issues such as reputation and climate risk, saying that focus distracted supervisors and financial institutions from material risks that ultimately preceded major bank failures. He warned that “regulation by reflex” not only weakens safety and soundness but also slows economic activity—an outcome he framed as its own threat to financial stability for community-based lenders.
Turning to FSOC’s agenda, Bessent said the council will prioritize four areas with direct relevance to financial institutions: Treasury market resilience, cybersecurity, regulatory modernization, and artificial intelligence. For banks and credit unions, he emphasized that stronger Treasury markets and better cyber defenses are foundational to protecting balance sheets and member data.
On modernization, Bessent explicitly said supervision should focus on material risks while reducing unnecessary burdens—particularly for community banks, a framing likely to resonate with credit unions that have long argued compliance costs disproportionately hit smaller institutions. He suggested FSOC should encourage agencies to pare back rules that stifle pro-growth lending, capital formation, and innovation rather than layering on new mandates.
Bessent concluded that this year’s FSOC report departs from past practice by narrowing its list of perceived vulnerabilities and centering economic growth and security instead. For credit unions, that signals a regulatory posture more focused on lending capacity, operational resilience, and technological risk than on expansive new supervisory themes unrelated to core financial stability.