Treasury Secretary Scott Bessent has proposed a major shift in how the government approaches financial regulation and stability, urging the Financial Stability Oversight Council (FSOC) to flip its mindset.
In a letter to the council, Bessent called for moving away from constant rule tightening. Instead, he wants FSOC to examine whether existing regulations are now threatening economic growth and, ironically, financial stability. The letter states that the council should work with member agencies to determine if parts of the U.S. regulatory framework “impose undue burdens and negatively impact economic growth, thereby undermining financial stability.”
This approach marks a sharp break from the Obama-era Dodd-Frank regime that created FSOC in 2010 with a clear bias toward more red tape, more designations, and expanded supervisory power. The council—which includes heads of the Federal Reserve, Securities and Exchange Commission, Federal Deposit Insurance Corporation, and other regulators under the Treasury secretary’s chairmanship—has already begun moving away from activist regulation.
In September, it voted without dissent to disband two climate-risk advisory panels that had been central to the Biden administration’s push to inject climate politics into bank oversight. Bessent described this shift as a “back to basics” approach that frees up capital for lending and growth.
Thursday’s proposal pushes the reset button even harder. Instead of treating every large firm as a potential villain, Bessent wants FSOC to scrutinize the cumulative cost of rules that have piled up since 2008—a burden community banks, regional lenders, and small businesses have long complained is choking credit. Earlier this year, Bessent began convening regulators to “streamline oversight” and apply “commonsense principles” so banks can better finance the real economy.
In a nod to innovation, Bessent has also formed an FSOC working group on artificial intelligence to “promote the resilience of the financial system while also monitoring for potential risks” from AI. The task force aims to find ways AI can strengthen risk management and market functioning, even as it keeps an eye on new vulnerabilities.
Supporters of the shift argue that Bessent is doing exactly what Republicans promised: undoing the mission creep that turned FSOC into a super-regulator and refocusing it on protecting stability by first protecting growth. The council’s own mandate includes “promoting market discipline”—not guaranteeing that Washington will always bail out bad decisions.
