Treasury Secretary Offers Plan to Strengthen Community Banks
Commentary by Steven Lofchie
Treasury Secretary Scott Bessent outlined a plan to ease regulatory burdens on community banks.
Speaking before the American Bankers Association in Washington, Mr. Bessent said "the Treasury Department intends to play a greater role in bank regulation." His plan focuses on (i) greater tailoring of regulation to business models, (ii) potential categorical exemptions for community banks, (iii) a reexamination of liquidity requirements and (iv) a "modernization" of regulatory capital requirements that would reduce burdens and increase fairness across banks and nonbanks.
Mr. Bessent argued that financial regulation in recent years has disproportionately favored large institutions, warning that "[o]ur Nation's community banks ... face many challenges, including from existing and new competitors and rising costs for compliance, technology, and personnel." He asserted "that community banks' vital work is undermined by undue compliance burdens." He also criticized bank examiners for straying from their mission of safety and soundness, citing their foray into "climate risk and the debanking of disfavored industries."
The Treasury Secretary also expressed skepticism of international standards, such as the Basel Committee's Endgame framework. He said US regulators must "conduct our own analysis from the ground up."
Commentary
In general, the costs of regulation tend to disfavor small firms more than large firms, as the latter are better able to spread the somewhat fixed costs. Accordingly, an Administration focused on deregulation should at least slow the general trend to go big. (See also SEC Commissioners Weigh-In on Small Business "Access to Capital".)