The News
Treasury Secretary Scott Bessent’s play for more control over US banking regulators, including the Federal Reserve, is about to enter a contentious new phase.
The Treasury Department is drafting recommendations for streamlining banking regulators like the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, three people familiar with the process told Semafor — after concluding that the agencies and their workers likely can’t be merged without a green light from Congress.
Treasury officials are expected to finalize those recommendations in the coming weeks, once the Senate confirms key nominees like Luke Pettit, President Donald Trump’s pick for assistant treasury secretary for financial institutions.
But Bessent’s ultimate agenda is one he’s already referenced in public remarks this month: claiming more control over how US banking regulators write the rules that govern financial institutions in order to make them less restrictive, including those written by the Fed. While Trump has said he won’t try to push out Federal Reserve Chairman Jerome Powell, the president is known to jawbone the central bank over interest rates.
And empowering Bessent to consolidate power over the Fed’s rulemaking alongside other regulators’, even if there’s no actual merger, is a potent way to impose that pressure.
“There are two ways to consolidate federal bank regulation. First, you can change the law,” Karen Petrou, co-founder of Federal Financial Analytics, wrote in a recent note to clients. “The other way is for one federal entity to assert all the power it has under law, and maybe more simply to take de facto charge of significant Fed, OCC, and FDIC supervisory and regulatory policy.
“Secretary Bessent has now made it clear that the Trump Administration will open Door Number Two,” Petrou added.
Bessent’s plan builds on a recent order Trump signed directing the central bank and other independent agencies to submit regulations to the Office of Management and Budget for review, according to three other people familiar with the secretary’s thinking.
Broadly speaking, his team is pursuing a two-track route to fencing in the Fed’s independence when it comes to bank supervision. First, the Trump order could slow down the central bank’s process and allow Treasury time to influence future rulemaking; second, Treasury’s role as chair of a longstanding council of financial regulators could empower it to take the lead or have the final say on multi-agency laws that affect the largest US banks.
Some members of Bessent’s team have previously pushed a harder line by arguing that the Fed shouldn’t supervise banks at all. That includes Treasury Chief of Staff Dan Katz, who advocated alongside now-Council of Economic Advisers Chair Stephen Miran for curtailing the central bank’s independence.
“I think bank regulation is an inherently fiscal function, and therefore, it should be in a body that’s politically accountable and that doesn’t unnecessarily impinge on the Fed’s ability to operate independently with respect to monetary policy,” Katz said on a podcast in May.
Making a more overt attempt to limit Fed independence, however, exposes Bessent — as well as Trump — to political risks amid signs of economic instability. Though many congressional Republicans have grown weary of Powell, only a handful are willing to outright critique his leadership or impinge upon the central bank’s regulatory lane.
Bessent himself has made a point to publicly defend the Fed’s right to “stay strong, robust and independent in monetary policy,” including during a recent podcast appearance.
Some critics are already questioning the motivations behind Bessent’s power play on bank supervision.
“Does the Treasury Secretary really believe that he ought to be the arbiter of how much capital each individual bank should have in the United States?” said Aaron Klein, an Obama administration Treasury official who is now a senior fellow at the Brookings Institution.
“That would be a radical change from the status quo,” Klein added, “and a politicization of bank regulation that would reverse decades of precedent.”
The Treasury Department did not comment for this story.
Know More
Bessent publicly addressed his plans for more power over regulators in a speech earlier this month at the Economic Club of New York, saying that he would launch a Treasury-led effort to refocus them on material risks instead of “box-checking,” as he put it.
He expounded in a recent podcast interview, saying: “We are re-examining all the bank regulations” with the goal of “safe, sound and smart deregulation.” Right now, he added, regulators “don’t care about growth. They don’t care about common sense.”
While the Trump administration has reportedly floated ideas like transferring FDIC employees to the OCC and shuttering the Consumer Financial Protection Bureau, Treasury can exert other power over banking regulators far more easily.
Treasury’s ability to take the reins on regulatory debates like capital requirements for big banks — otherwise known as Basel III endgame — rests on expanded powers it was given through the 2010 Dodd-Frank Act (which Klein worked on).
The Dodd-Frank law expanded Treasury’s oversight of the financial system, creating a council of all the federal financial and housing agencies and installing the Treasury secretary as chair.
The Fed chair also gets a vote on that council, but the Treasury secretary’s chairmanship imbues their department with the most power. And two other members of the council are independent branches of Treasury.
“It is clear that Secretary Bessent has the power to get what he wants,” Petrou wrote. “If he also has the bandwidth and we are not overtaken by events, then much will quickly start to change that is much to the liking of most US banks.”
Anything structural will likely require Congress to sign off, whether it’s folding the FDIC into the OCC — or blocking the Fed from supervising banks. Already the Trump administration’s attempted dismantling of CFPB is on hold as a court parses the effort.
But Treasury can, through its role atop the financial agencies’ council and Trump’s new executive order, assert significant sway over the Fed’s work on bank supervision. Treasury’s Katz previously criticized the central bank’s handling of Basel III endgame as one example of bank supervision “dragging the Fed into a very ugly political fight.”
Klein suggested that giving Treasury more power over bank regulators might prove even more polarizing than a complex regulatory merger.
“Consolidating the regulators does not mean bringing them under the Treasury or White House’s control, and that’s a big distinction,” Klein said. “The question for this administration is: Are they more interested in regulatory consolidation? Or are they more interested in political control of the regulator?”
It’s also unclear whether separating the Fed’s supervisory activities from its monetary ones is even possible. As University of Pennsylvania professor Peter Conti-Brown put it earlier this year, “if you pick up one end of the stick, you pick up the other.”
Eleanor and Rachel’s View
Banks have complained about over-regulation since the 2008 financial crisis, leading even Democrats to urge Congress to consolidate banking regulators. But this time is different.
Financial institutions are already struggling to parse a host of rules stuck in regulatory purgatory amid the transition. And though they’re big fans of Bessent’s “safe, sound and smart deregulation” in theory, they still don’t know exactly what that will look like.
As JPMorgan Chase CEO Jamie Dimon recently told Semafor: “Uncertainty is not a good thing.”
Either way, any clarity is likely weeks away. Treasury will be loath to finalize any recommendations until Pettit and others are in place — especially now that their nomination hearings are scheduled.
Room for Disagreement
Despite the political implications of granting Treasury more sway over the Fed at a time when Trump is angling for more control of all independent agencies, some experts are unconvinced that Bessent’s plan would change much practically.
That’s because elevating Treasury still leaves financial institutions accountable to the same “alphabet soup” of regulators.
“That doesn’t scream out anything about efficiency, really, except that maybe it would be easier to get a joint rule through if Treasury had more to say about it,” said Norbert Michel, vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives.
“That just seems like such a giant waste of energy.”
Notable
- Bessent’s full appearance on the All-In podcast addressed some of the banking rules he wants to revisit — and how he thinks some of the Fed’s recent “too harsh” regulatory effort “threatens their independence.”
- Petrou joined the Banking With Interest podcast to discuss her note, including how she expects “the Fed will devote every ounce of its being to defending its monetary policy independence and decide to play at least some, if not a whole lot, of ball with the White House and the Treasury on bank regulation.”