Treasury Secretary Scott Bessent on Thursday outlined a sweeping reset of the U.S. government’s main financial stability watchdog, arguing that the Financial Stability Oversight Council should treat economic growth and economic security as preconditions for stability, not competing goals.
Speaking at an FSOC meeting as the council released its 2025 annual report, Bessent said the Trump administration has been pursuing what he calls “Parallel Prosperity,” a period in which Wall Street and Main Street expand together. He cast the council’s new approach as part of that effort, after what he described as years in which safeguards were allowed to harden into red tape.
“Too often in the past,” he said, efforts to safeguard the financial system produced “burdensome and often duplicative regulations” with little consideration of the economic costs or the drag on innovation and credit. The administration, he said, is now “changing that approach” by putting sustained growth and national economic resilience at the center of the council’s work.
The FSOC was created by the 2010 Dodd-Frank Act in the wake of the global financial crisis, bringing together the heads of the Federal Reserve, the Securities and Exchange Commission, the Consumer Financial Protection Bureau and other regulators under the Treasury secretary’s chairmanship. It was designed as an early-warning body for systemic risks, with the power to subject nonbank firms to Federal Reserve oversight and to push regulators toward tougher rules in areas it deemed vulnerable.
Over the decade and a half of its existence, however, FSOC has drifted from that original mission, according to critics. Instead of serving mainly as an early-warning forum, it has often been seen as a vehicle for layering on new mandates, designating additional firms and activities as potential threats, and encouraging regulators to ratchet up constraints across a wide range of markets. Banks and nonbank firms alike have complained that the council’s work has contributed to a web of overlapping, sometimes inconsistent rules that raise compliance costs, constrain credit, and push more activity into less-regulated corners of the financial system.
Bessent’s remarks and the new report amount to the boldest effort yet to reform the council away from adding layers of regulation and toward paring back what he describes as outdated or counterproductive rules. The annual report is organized around what he calls the “twin priorities” of economic growth and economic security, which he argues are “both essential to financial stability.”
On growth, Bessent said stronger expansion supports stability by lifting bank profits and capital buffers and by keeping household and business balance sheets healthier and less prone to default. But he said policymakers historically have not “routinely considered the cumulative burdens of regulatory and supervisory regimes” or how unmodernized rules can hold back both resilience and growth.
On economic security, he borrowed from national-security doctrine, describing it as a combination of robust domestic productive capacity and reliable access to global resources at a standard of living Americans consider acceptable. If living standards stagnate or fall, he warned, the resulting strain can itself become a source of financial instability. Technologies that harden the system against attack and regulations that help steer credit toward strategic sectors, he argued, reinforce both security and stability.
In line with that framework, the new FSOC report highlights a set of concrete priorities rather than an open-ended list of vulnerabilities. The council plans to set up interagency working groups on market resilience, household resilience, artificial intelligence and cyber crisis preparedness, according to officials and the report. The market-resilience group will focus heavily on the roughly $29 trillion Treasury market and related funding markets, while the household group will examine pockets of stress in consumer credit even as overall household finances remain solid.
The AI working group will have a dual mandate: encouraging regulators to use advanced tools to improve supervision and data analysis, and monitoring potential systemic risks from the rapid adoption of AI in lending, trading and risk management. A separate effort will look at how to prepare for large-scale cyber incidents, including threats amplified by AI and, over time, advances in quantum computing that could undermine current encryption standards.
Bessent’s shift is already showing up in a series of specific regulatory changes the FSOC report highlights.
Banking regulators have moved to recalibrate key leverage ratios, including the enhanced supplementary leverage ratio for the largest banks and the community bank leverage ratio, after complaints that the old calibration was binding even for low-risk activities. The enhanced supplementary leverage ratio requires the biggest institutions to hold capital against all exposures regardless of risk, meaning even ultra-safe Treasury holdings count the same as risky loans. Supervisors had warned for years that high capital requirements were pushing banks out of Treasury market-making; the new approach is meant to restore balance by keeping leverage standards as a backstop without discouraging investment and dealing in government securities.
The report also points to efforts to simplify and tailor capital rules for community and midsize institutions. Agencies are reviewing overlapping requirements and volatility in stress-test capital buffers that, in practice, made it hard for banks to plan lending and investment. Proposed changes would smooth those swings and reduce complexity for smaller firms that do not pose the same systemic risks as the largest dealers, while keeping basic loss-absorbing standards in place.
On the supervisory side, Bessent and the council back a move to narrow the grounds for citing “unsafe or unsound practices,” including scaling back the use of open-ended “reputational risk” as a catch-all justification for intervention. During the administrations of Barack Obama and Joe Biden, regulators invoked ‘reputational risk’ to pressure banks away from firearms manufacturers, fossil fuel companies, and other businesses disfavored by progressive activists. Bankers have said regulators pushed them to cut off customers—a move often called “debanking”— on grounds that serving them created reputational risk, even when the businesses operated legally and posed no credit risk.
Regulators have begun withdrawing or revising guidance that smuggled left-wing political positions—including climate-related policies—into safety-and-soundness expectations. The report argues that clearer, statute-based standards should make supervision more predictable and reduce the risk that banks feel pressured to exit politically disfavored lines of business.
The annual report further notes that the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency are revisiting merger-review policies that had created additional uncertainty for bank consolidation, and that all three federal banking agencies have moved to clarify how institutions may engage with digital-asset businesses. The emphasis, in the council’s telling, is on applying existing capital, liquidity and anti-money-laundering rules consistently, rather than building a separate, more restrictive regime that could push activity into the shadows.
Supporters of Bessent’s shift say it reflects long-standing complaints from community banks, Republican lawmakers and some economists that the post-crisis framework has become too complex and, in places, counterproductive. Efforts such as the 2017 Financial CHOICE Act, which sought broad relief from Dodd-Frank requirements, signaled that pressure for a course correction had been building for years, even if that legislation did not become law.
Senator Elizabeth Warren, D-Mass., attacked the reforms, claiming without evidence that the administration was adopting a “hands-off approach to financial stability.”
Bessent, for his part, cast the changes as a way to make FSOC more focused, not less vigilant. The report still flags vulnerabilities in areas such as commercial real estate, hedge-fund leverage in Treasury-related trades, nonbank mortgage lenders and the expanding role of payment stablecoins, but it does so against the backdrop of an overall system that the council says has remained resilient through recent shocks.
He also linked the domestic agenda to the United States’ role as host of the Group of 20 major economies in 2026, saying the administration intends to make global growth and deregulation a central theme by pushing to remove “harmful regulations and barriers to innovation” worldwide.
This recalibration marks the most significant rethink of the U.S. financial-stability regime since Dodd-Frank, turning a council built in the aftermath of crisis toward the task of pruning obsolete rules while trying to keep sight of the risks that can still upend the broader economy.
