Secretary of the Treasury Scott Bessent addressed the United States House Financial Services Committee to discuss the Financial Stability Oversight Council’s (FSOC) 2025 annual report. In his opening remarks, Bessent thanked committee members and FSOC colleagues for their contributions to the report.
Bessent emphasized the administration’s focus on what he called “Parallel Prosperity,” describing it as an economic expansion where both Wall Street and Main Street benefit. He said, “Since Day One, President Trump has focused on building Parallel Prosperity—an era of economic expansion where Wall Street and Main Street grow together. To that end, Treasury has tirelessly pursued pro-growth policies to unlock the potential available to all Americans when they are free to save, invest, build businesses, and drive their own economic destinies. The Financial Stability Oversight Council plays an important role in delivering on this agenda.”
He criticized past regulatory approaches, stating that previous efforts often reacted to crises instead of preventing them. According to Bessent, “Too often in the past, we have seen regulation by reflex. Rather than preempting crises, regulators have frequently reacted to them after the fact. They have played the role of a hazmat cleanup team instead of preventing dangerous spillovers in the first place.”
Bessent argued that under President Biden’s administration, financial regulators focused on issues like reputation risk and climate-related risks rather than core concerns related to safety and soundness. He linked this approach to major bank failures in 2023: “Regulation by reflex has led to a regulatory myopia that has undermined safety and soundness. Under President Biden, the bank regulators preoccupied themselves with ‘reputation risk,’ ‘climate-related financial risks,’ and other risks with no clear nexus to safety and soundness… The result, predictably, was the second, third, and fourth largest bank failures in U.S. history in 2023.”
He warned against excessive regulation aimed at eliminating all risk from financial systems: “In calibrating regulations, federal agencies must avoid the temptation to create a zero-risk financial system, which would result in what others have called, ‘the stability of the graveyard.’ FSOC should aim to identify vulnerabilities that could lead to systemic crises and encourage the private sector to mitigate those risks before recommending additional regulation.”
Bessent outlined four main policy areas highlighted in FSOC’s annual report: maintaining robust Treasury markets; protecting against cyber threats; modernizing regulations for banks and credit unions; and promoting responsible use of artificial intelligence.
On Treasury markets: “The Council is ensuring that the U.S. Treasury market remains the deepest and most liquid in the world… Ongoing monitoring and targeted reforms by individual agencies remain essential to financial stability.”
Regarding cybersecurity: “The Council is taking action to protect our financial system from increasingly sophisticated cyberattacks… To address this risk, the Council is supporting expanded information sharing, joint monitoring, and scenario-based exercises.”
On regulatory modernization: “The Council is committed to supporting efforts to modernize supervisory and regulatory frameworks for banks and credit unions… regulation and supervision should address material risks, enhance transparency, and reduce unnecessary burdens—particularly for community banks.”
For artificial intelligence: “The Council is prioritizing the responsible use of artificial intelligence to strengthen financial stability… working with public- and private-sector partners…to enhance system resilience while closely monitoring emerging risks.”
Bessent concluded by noting changes made in this year’s annual report structure: “In this year’s report, FSOC shifted away from its past approach… By introducing a new structure centered on fostering economic growth and security, we are tuning out the white noise to concentrate on the issues that matter most for U.S. financial stability.” He ended his statement by inviting questions from committee members.
