Treasury Secretary Scott Bessent appeared before the U.S. House Committee on Financial Services yesterday and the Senate Banking Committee today to present the Financial Stability Oversight Council’s Annual Report to Congress.
Here are some takeaways from the hearings:
1. Stablecoin legislation should avoid deposit flight that could deprive communities of lending.
Sen. Cynthia Lummis (R-WY): “Among the things that have challenged us in these last months, is concern by community banks and big banks that the stablecoin bill, the GENIUS Act and market structure [bill] could cause a bleeding of deposits from small banks. What’s your reaction to that concern?”
Secretary Scott Bessent: “Look, I’ve been a champion of these small banks, and deposit volatility is very undesirable, because it is the stability of those deposits that allows them to lend into their communities, ag[riculture], small business, real estate and we will continue to work to make sure that there is no deposit volatility associated with this.”
2. Congress remains committed to bipartisan market structure and stablecoin legislation.
Sen. Angela Alsobrooks (D-MD): “Before I get to my questions, I want to make a quick comment on market structure legislation. Mr. Secretary, I speak for many of my colleagues when I say that we really want to get to a good, bipartisan bill. We want to get it done. And I’ve appreciated working with your team, both during the GENIUS Act and market structure process, and really appreciate their attention to the issue of stablecoin paying yield and interest. I am confident, feel really good we are going to get a bipartisan compromise that protects innovation and our community banks, and I really encourage your continued work on that issue.”
3. Treasury is on track to issue rules implementing the GENIUS Act by July 2026.
Rep. Bryan Steil (R-WI): “I chair the Digital Assets Subcommittee. We passed and [the President] signed into law the STABLE [GENIUS] Act, setting forward legislation as it relates to stablecoins. Treasury is required to complete implementing regulations by July 18 of this year. Are you going to hit the deadline and are there any impediments preventing you from hitting that July 18 deadline?”
Secretary Scott Bessent: “I don’t see any impediments at present, and if we’re going to hit them, we will notify you and the committee.”
4. Duplicative regulation and supervision costs consumers.
Chairman Tim Scott (R-SC): “Reassessing bank regulatory and supervisory frameworks to remove undue burdens isn’t about weakening safeguards. It’s about making sure the financial system works as intended for the people it serves. Coordination matters too. Businesses should not be caught in the crossfire, conflicting rules, duplicative supervision or regulatory whiplash. When regulators fail to coordinate, the consequences don’t stay in Washington. They show up in higher costs, fewer choices and less access at the kitchen table.”
5. Excessive capital requirements constrain economic growth.
Rep. Dan Meuser (R-PA): “How will modernizing the capital framework improve credit, access and affordability for small businesses, homeowners, farmers who will ultimately, in the end, bear the costs for such excessive capital requirements?”
Secretary Scott Bessent: “Again, Congressman, the groups you just listed, they are the three most dependent on community and small banks, and we are determined to increase their lending capacity, to increase their proclivity to lend, and we want to do it on a safe, sound and smart basis.”
Rep. Dan Meuser (R-PA): “In the previous administration, we had regulators that imposed capital requirements well beyond the international peers, including the GSIB surcharge, the CCAR, tier 1 leverage ratios. Are these frameworks being reviewed holistically to better support lending and economic growth?”
Secretary Scott Bessent: “Again, we are not going to let outside regulators determine what is best for the U.S. financial system.”
6. Capital and liquidity regulation reforms could improve the stability of the Treasury market by incentivizing bank intermediation.
Rep. Frank Lucas (R-OK): “We saw occasional bouts of Treasury market volatility last year. How would reforms to banking regulations like the liquidity coverage ratio and stress tests incentivize market intermediation for banks and improve market stability?”
Secretary Scott Bessent: “Again, Congressman, wonderful question — that it brings more of our Treasury market on shore. And as you said, there were periods of stress last year, the market successfully navigated those at the end of January. We had the third highest volume in the Treasury market, and the bid-ask spreads, very important for the financial well-being of the American people who are invested in money market funds and bond funds and their retirement funds, they have stayed right in the center line, and we are at a five-year low in bond market volatility.”
7. Modernizing anti-money laundering requirements would help law enforcement target financial crimes with more precision.
Rep. Barry Loudermilk (R-GA): “Do you believe that a modernized, effective [Bank Secrecy Act] regime would hinder or undermine law enforcement if we were to modernize it?”
Secretary Scott Bessent: “Again, if it were done in a very smart way that optimizes looking for criminal activity, not at all.”
Rep. Barry Loudermilk (R-GA): “And that’s really the direction I think we should be going. Eliminate the noise so we can focus on where the bad players actually are. Mr. Secretary, when can Congress expect to see the Treasury’s proposed changes to the BSA program?”
Secretary Scott Bessent: “Congressman, I will get back to you on that, but we are working on it with all deliberate speed.”
8. Regulatory sandboxes could help advance responsible AI innovation.
Sen. Mike Rounds (R-SD): “FSOC’s report also recognizes that overly complex and subjective supervision, like reliance on vague concepts such as reputational risk, as you mentioned in your opening statement, restricts valuable activities. Given FSOC’s push for clearer standards and responsible AI adoption, would a time-limited AI sandbox for financial institutions with clear guardrails help firms test AI tools in a controlled setting while regulators evaluate risks and benefits?”
Secretary Scott Bessent: “Senator, that is clearly the one very interesting option, and we are considering that moving forward. We’d be happy to work with your staff on that.”
