Treasury Secretary Redefines Financial Stability Mandate to Boost Growth

2025-12-11 economy

Washington D.C., Friday, 12 December 2025.
Reversing post-2008 logic, Secretary Bessent is overhauling the FSOC to prioritize deregulation, asserting that excessive rules now constitute a greater threat to financial stability than market risks.

A Paradigm Shift in Systemic Risk

On Thursday, December 11, 2025, Treasury Secretary Scott Bessent formally initiated this strategic pivot in a letter to the Financial Stability Oversight Council (FSOC), marking the council’s first annual report release under his leadership [2]. Challenging the regulatory philosophy that has dominated since the 2008 financial crisis, Bessent argued that the “cumulative burdens” of overlapping supervisory regimes are rarely considered by federal agencies [3]. He posited that frameworks imposing “undue burdens” negatively impact economic growth, thereby paradoxically “undermining financial stability” rather than safeguarding it [1][3]. This approach aligns with his “growth buffer” theory, which redefines stability metrics to prioritize indicators like wage growth and corporate earnings over strict capital preservation [5].

New Operational Priorities

To operationalize this mandate, the FSOC is establishing new working groups dedicated to Treasury market resilience, household finances, and artificial intelligence [2]. The council’s approach to technology signals a distinct departure from previous caution; rather than solely policing risks, the new AI working group is tasked with exploring opportunities for artificial intelligence to “promote the resilience of the financial system” [4]. This group will serve as a forum for public-private dialogue specifically designed to identify and remove “regulatory impediments” to the adoption of AI within the financial services sector [4][7].

Dismantling Post-Crisis Architecture

The overhaul targets several structural pillars established under the 2010 Dodd-Frank Act. The Council plans to move away from entity-based Systemically Important Financial Institution (SIFI) designations for nonbanks, favoring “tailored recommendations” directed at primary regulators instead [5]. Additionally, Secretary Bessent is expected to dissolve the Council’s climate-related advisory committees and strip climate-risk language from its 2023 analytic framework, viewing these as part of the “prophylactic” policies that have historically stifled innovation [2][5]. This deregulation drive is described by administration advisers as the “third pillar” of President Trump’s economic plan, aimed at jump-starting output ahead of the 2026 midterm elections [1].

Political Friction and Market Response

This aggressive deregulatory stance has ignited a sharp divide between political critics and market participants. Senator Elizabeth Warren (D-Mass.) expressed grave concerns in a letter sent on December 3, 2025, warning that this “hands-off approach” leaves the financial system vulnerable to shocks [2][4]. Conversely, the financial sector has reacted with optimism; since Secretary Bessent first outlined his deregulation agenda in September 2025, financial stocks have consistently outperformed the broader market [5]. While the FSOC report acknowledges the resilience of the system—even following the Treasury market turmoil triggered by tariffs in April 2025—it explicitly pivots toward a model where the risk of overregulation is treated as a primary threat to the economy [2].

Sources

Deregulation Banking Policy