Secretary of the Treasury Scott Bessent testified yesterday before the U.S. House Committee on Financial Services. While the hearing examined a broad range of topics spanning the international financial system, here are four notable prudential regulatory exchanges worth highlighting:
1. Congress and the banking agencies remain focused on potential adjustments to the supplementary leverage ratio.
Rep. Frank Lucas (R-OK): “I’ve long said that the administration should look at reforming regulations like the [supplementary] leverage ratio to relieve some of the constraints that market participants are facing in the Treasury market. I hope you’ll consider looking at that.
Secretary Scott Bessent: “Sir, Treasury does not look at that, but I believe that it is a high priority for the three regulators the OCC, the FDIC and the Federal Reserve.”
2. The path forward on Basel III Endgame should look beyond the narrow lens of “capital neutrality.”
Rep. Roger Williams (R-TX): “In particular, I urge you to weigh the combined impact of proposals like Basel III Endgame, the GSIB surcharge and leverage requirements, especially whether these changes could limit banks’ ability to support the economy and complete globally. So, in your work so far, are there any specific areas where you plan to address these concerns about regulatory [requirements] putting U.S. institutions at a disadvantage, such as in the re-proposal of the Basel III Endgame rule by amending the GSIB surcharge regulation?”
Secretary Scott Bessent: “Congressman, we are looking across all areas and know that this is at the top of our agenda, that most countries have very concentrated banking systems. In many cases, the banking systems are larger than the GDP of the countries, so they have very different needs than the United States. The strength of the United States; lending and capital markets and economy is the breadth and depth of our financial institutions, and we will continue to advocate for them, both at home and abroad.”
3. Congress is weighing potential competitiveness concerns related to the E.U.’s Corporate Sustainability Due Diligence Directive.
Rep. Ann Wagner (R-MO): “In February, several members of this Committee and the Senate, including myself and the chairman and the Senate Banking Committee, sent you a letter voicing concerns about the European Union’s Corporate Sustainability Due Diligence Directive, or CSDDD. This directive, which was finalized by the EU last year, will require many American companies to evaluate their supply chains and end certain business activities, not based on U.S. law, but due to U.N. principles. This directive not only hurts our economic competitiveness, but also undermines our jurisdictional sovereignty, sir. It would be — it would force both public and private companies to comply with regulations that have not been approved by Congress, while also exposing them to increased litigation and risk in the E.U.”
4. Treasury is continuing to evaluate the effectiveness of the $10,000 Currency Transaction Report threshold.
Rep. Barry Loudermilk (R-GA): “For several years I’ve called for FinCEN to raise the threshold for currency transaction reports from $10,000 to some higher value. Working on legislation – have been for the last several years – and I do have legislation again this year on that. If adjusted for inflation from the 1970s this threshold would be somewhere between $74,000 and $80,000. But we haven’t — we’re still stuck at that $10,000 limit. In your opinion, what threshold value best balances privacy and compliance cost against the utility that these reports have for law enforcement?”
Secretary Scott Bessent: “Congressman, I am not sure what the equilibrium level is. What we have discovered — so you were talking about the threshold for a suspicious activity report.”
Rep. Barry Loudermilk (R-GA): “The currency transaction reports.”
Secretary Scott Bessent: “So we are now examining that, and we are finding that sometimes higher is better, sometimes lower is better. We have discovered that there are approximately 40 counties on the U.S., Mexico border that account for a substantial amount of nefarious behavior by the cartels. So we have lowered that to $200 and we are finding great efficacy there in pushing the cartels back into Mexico and not allowing them to deal in the United States. So I would say, sir, it’s a moving target.”
Rep. Barry Loudermilk (R-GA): “And I can, I can understand and appreciate that, one of the issues that we have from a nationwide status is the compliance cost that goes to small financial institutions and even from law enforcement the complaint is trying to find illicit financing currently is like looking for a needle in the haystack because of the pure volume of reports that are being made. And so my argument has been from a nationwide status, and I’m sure we can work on something to make exemptions during times, like you’re talking about now, in locations, but is not to increase the size of the haystack but reduce the haystack so it becomes more prevalent, the illicit financing.”
Secretary Scott Bessent: “Congressman I am hypersensitive to the needs of the small and community banks and the undue burden that much compliance is placing on them, and we are working across a variety of ways to lower that cost.”
