The Treasury Department is working with the bank regulators to finish the U.S.'s Basel committee-pursuant capital standards with an eye to clearing obstacles for American firms and "harmonizing" regulation of the financial system, the deputy secretary said Friday.
Michael Faulkender said parts of the capital framework issued by the Basel committee would be considered, but that U.S. regulators must ensure any capital regulations are "Americanize[d]."
"The U.S. financial system was built around … lending to individuals and businesses," Faulkender said in remarks delivered at the Council on Foreign Relations. "If we lose one of the important strengths of our economic system by moving more toward financing government and inadvertently decrease the funding availability to individuals and businesses, that would be detrimental … so there are important strides that Basel made, but there are other areas where we just don't think that it's going to be appropriate."
The agency is tapping Secretary Scott Bessent's authority to convene regulators as leader of the Financial Stability Oversight Council, according to Faulkender. Acting Comptroller of the Currency Rodney Hood, Federal Deposit Insurance Corp. Chair Travis Hill and newly confirmed Federal Reserve Vice Chair for Supervision Bowman are working with the Treasury bank capital standards, Faulkender said.
The Trump administration aims to unburden the system without sacrificing safety and soundness. Overregulation, Faulkender said, discourages banks from making less lucrative loans in response to having to put up a higher level of equity.
"Capital is the ultimate kind of shock absorber when it comes to the financial system," he said. "On the other hand, to the extent that the capital requirements are excessive, that is capital that is off the table and not being used to facilitate Main Street activity."
Faulkender also said excessive regulation could unintentionally push financial activity into the nonbank sector where oversight is more opaque, systemic risk is harder to keep tabs on and whose inner workings the government is less primed to address. Instead of expanding regulation to cover these shadow markets, he said, the U.S. government should help banks remain competitive.
"If all this capital has escaped into the shadows, rather than bring the shadows into a regulatory oversight, how about we just make the regulated space work better, such that the capital doesn't flee in the first place," he said.
The official's comments Friday echo Treasury Secretary Bessent's remarks at the Milken Institute Global Conference in May. Bessent said private credit's growth was evidence of excessively onerous regulation on banks and called for a "re-leveraging [of] the private sector."
Faulkender also previewed changes to a key anti-money-laundering standard. The $10,000 transaction reporting threshold set in the 1970s is outdated, he said. More broadly, he pushed for a risk-based compliance approach and criticized the current exam framework as too costly for U.S. institutions.
"If you modernize the Bank Secrecy Act, but you do nothing about the examination process that's used to ensure compliance … you haven't actually addressed this bureaucratic cost structure that drives up the cost of financial services, and for some Americans, drives them out of financial services because it's too expensive to provide it to them," Faulkender said. "So if we want to address underbanked and unbanked Americans, then we need to look comprehensively at all of the things that are driving up the cost of providing financial services."
