FSOC: Overregulation a threat to financial stability

The Financial Stability Oversight Council will expand the concept of financial stability to explicitly include economic stability and growth, seeing overregulation as a potential threat, said Treasury Secretary Scott Bessent. .Bessent, FSOC chair, said financial stability has not been defined in previous administrations. “A holistic review of regulation and supervision is underway by banking agencies, with a focus on modernizing and simplifying the capital framework, tailoring supervision and regulation to the underlying risks, and revamping bank supervisory practices to refocus resources on material financial risks,” Bessent said. The report was released Dec. 11 as part of the council’s annual report. An interagency body, the FSOC was created by the 2010 Dodd-Frank Act to spot financial stability risks. The FSOC recently established new working groups on artificial intelligence along with household and market resilience. The council is also expected to prioritize crisis preparedness to support interagency work to prepare for cyberattacks to critical service providers, along with threats from advances in technology and geopolitical risks. .Bessent’s comments are part of the Trump administration’s broader emphasis on reducing bank regulations. Last month, the Office of the Comptroller of the Currency announced it is eliminating annual Money Laundering Risk System data collection for community banks along with easing examination procedures under the Bank Secrecy Act. Federal Reserve Vice Chair for Supervision Michelle Bowman has frequently called for regulatory tailoring in the community banking space. Last month, she suggested lowering the community bank leverage ratio threshold to 8 percent from 9 percent, saying it could increase participation and free up lending capacity.