As prepared for delivery.
Thank you for inviting me to join you all today. It is a privilege to be with so many banking leaders who play a critical role in shaping the financial landscape throughout our nation.
Four days after the attacks on September 11, 2001, I was in Washington, DC for the very first time. I found myself standing in front of the Treasury building and will never forget the patriotism and potential of our nation that I felt on that day. Every day that I walk into Treasury, I am reminded of the awesome privilege I have to serve there and the awesome responsibility that comes with it.
During President Trump’s first term, I was the Assistant Secretary for Economic Policy, in which I advised the Secretary on all domestic and international matters that impacted the economy. During the COVID-19 pandemic, I assisted in the negotiations of the CARES Act and was the senior Treasury official that led the implementation of the Paycheck Protection Program. Now as Deputy Secretary, my role is to serve as the Chief Operating Officer of the department, implementing every aspect of Treasury authority from tax administration to international financial negotiations to sanctions implementation to coordinating financial regulation across the federal government.
As Secretary Bessent has said, when the world is in trouble, they look to 1500 Pennsylvania Ave. That is a testament to the dedication, intellect, and excellence of my colleagues at the Treasury Department. Their work is critical to providing a best-in-class service to the American people and in ensuring the implementation of the President’s agenda.
My plan today will be to give you all an overview of what I see as priorities for the Administration, and specifically for Treasury.
We are now more than 100 days into the Administration and the Treasury Department has been active in working with the rest of the Administration in countering the affordability crisis, helping Main Street thrive, and delivering long-term economic growth and innovation.
The core components of the Trump economic agenda are reciprocal trade, making the tax code even more pro-growth, and reducing the excessive regulation that holds back the entrepreneurial spirit of our nation. These are not standalone policies. They are, as Secretary Bessent has said, interlocking parts of an engine designed to drive economic growth and domestic manufacturing: Tax cuts and cost savings from streamlining the federal government raise real incomes for families and businesses; tariffs create an incentive for reshoring jobs and fair trade; and deregulation complements these actions by making it easier to invest in energy and manufacturing projects.
Already, this agenda is bearing fruit. In the first 100 days of the new administration, 464,000 new jobs were added to the economy. In April alone, over 177,000 American jobs were added—40,000 more than had been predicted. All the while, unemployment remains low and real hourly wages continue to grow.
Today, I will primarily focus on this last component – deregulation – specifically, responsibly modernizing the financial sector to accelerate the re-privatization of the economy.
Our nation’s banks – and their roles as financial intermediaries – have been weighed down by burdensome regulatory requirements and a supervisory culture that needs to be fixed. Bank regulation and supervision can and should reflect and support the current needs of our economy.
And, I firmly believe that we have in our hands an opportunity to allow banks to succeed while simultaneously supporting economic growth, upward mobility, access to financial services, wealth creation, and prosperity for all Americans.
I’ll touch on three areas. First, the key guiding principles that Treasury will use to inform this regulatory agenda, second, bank supervision, and finally modernizing regulatory capital and liquidity.
Our guiding principles are rooted in President Trump’s focus on restoring common sense to government, which aims to make financial regulation and supervision more efficient, effective, and appropriately tailored.
President Trump recently issued an executive order that requires the OCC, the FDIC, and the Federal Reserve to submit regulatory actions for review at the Office of Management and Budget. This is one step the Administration is taking in improving analytical rigor and discipline, while increasing accountability.
The Department of the Treasury will also play a greater role in bank regulation so that our financial regulators are acting in unison. To be clear, as the Secretary has mentioned, this does not mean the consolidation of agencies, but harmonization via Treasury, such that our regulators are working in parallel with each other.
Having served in the Treasury Department for two years during the first Trump Administration, I know firsthand that one of the great strengths of the Department is its convening power.
One way we do that is through the Financial Stability Oversight Council. FSOC is chaired by Secretary Bessent and brings together federal and state financial regulators. Treasury can also use the President’s Working Group on Financial Markets, another convening mechanism, which generally includes the Secretary of the Treasury and the chairs of the Federal Reserve, SEC, and CFTC. In addition, we regularly engage with each federal bank regulator.
The Secretary has committed that Treasury will devote the necessary time and attention to financial regulatory reform. This is an area where I personally intend to stay closely engaged along with the broader Treasury team.
These are our guiding principles for bank regulation:
Regulations should derive from a clear statutory mandate, including safety and soundness, mitigating material risk to financial stability, and consumer protection.
Regulation should be efficient, striking an appropriate balance between costs and the benefits.
Regulation should be fair and objective, such that there is clarity and consistency in the industry across entities and time.
Finally, the regulators themselves should be efficient to mitigate risk and protect taxpayers’ hard-earned dollars. There should be greater transparency in their actions.
To take just a few examples of the practical implications of these principles, let me share more about the idea of striking a balance between costs and benefits.
First, we must recognize that such a balance requires tailoring regulatory actions to the risk profiles of different business models.
Second, when we are evaluating the costs and burdens of a given regulatory action, we must recognize the potential for unintended consequences.
A good case study is the fact that a great deal of financial activity has moved out of the regulated banking system. It is clear that this shift out of the banking system is significantly driven by regulation—and in particular by outdated capital requirements on some exposures that are well in excess of the latest evidence on the actual risk of those exposures.
Turning to the other side of the equation, in assessing the benefits of a regulatory action, we should also remember the tremendous economic and human cost of a financial crisis and therefore, the benefits of avoiding them.
Treasury is committed to realizing a banking system that creates sustainable Main Street economic prosperity.
Regulation should ensure a safe and sound banking system, but should not overshoot. The ultimate objective must be a banking sector that competitively serves businesses and consumers and allows for greater lending, wage growth, and opportunities for American families.
In addition to regulation, Treasury is also closely focused on supervision.
Our financial regulatory agenda must include a fundamental refocusing of supervisors’ priorities. Leadership at the Federal Banking Agencies must drive a culture that focuses on material risk taking, rather than box checking or subjective reputational issues.
There is perhaps no better recent case study for this point than the bank failures in spring 2023. A careful review of those bank failures underscores how centering supervision on management and other governance matters can distract examiners and banks’ risk managers from the real risks to safety and soundness.
The associated mission drift can lend itself to political ends, as we saw with the focus on climate risk and the debanking of disfavored industries.
Treasury wants our banking agencies’ supervision to be re-focused on material financial risks, which will ultimately enhance safety and soundness, reduce compliance costs, and remove obstacles to banks’ responsible lending and risk taking.
The Treasury Department intends to drive a change in the culture of supervision through improvements to examination procedures and enhanced monitoring of examiners’ compliance with those procedures.
I’m sure that those of you in this room have heard the phrase “unsafe and unsound” more times than you can count. But how often have you seen it defined? Perhaps the most consequential step would be to define “unsafe and unsound” by rule, using more objective measures rooted in financial risk.
We know that banks have no meaningful recourse today and that concern about retaliation makes the existing supervisory appeals options more theoretical than real. To that end, we intend to create a more realistic process for appealing supervisory findings. It should no longer be the case that policymakers are denied access to CSI.
In the meantime, the Secretary has asked each of the Federal Banking Agencies to consider removing reputational risk as a basis for supervisory criticism and that effort is well underway.
Finally, I’ll speak briefly about the need to modernize regulatory capital and liquidity.
Modernization of capital would have a number of benefits. It could enhance banks’ ability to support Main Street innovation and economic growth and improve their safety and soundness.
I mentioned earlier that financial activity has moved out of the banking system in part due to regulation. Modernizing regulatory capital could reduce risk to financial stability by leveling the playing field across banks and nonbanks.
To that end, a significant open question remains how to foster competitive parity across large and small banks and nonbank lenders.
Ultimately, our approach to capital should be based on a regulatory framework that is in the interest of the United States.
To the extent that the Basel Committee’s Endgame standards can provide inspiration, we could borrow selectively from them. But this should only be done to the extent that we can independently validate the underlying rationale and then make that rationale available for public comment.
We will also look at the capital buffer framework that applies to the largest banks. The process for sizing each large bank’s stress capital buffer should be consistent with the law and otherwise provide appropriate transparency and opportunity for comment. That is especially important given the role that stress-testing indirectly plays in the pricing and allocation of financing.
Another concern that we have is with the enhanced Supplementary Leverage Ratio. As we all know, leverage capital is supposed to function as an appropriate backstop. But the eSLR, as it is set up now, can risk becoming a binding constraint instead of a backstop.
The result is that the safest asset in the country, U.S. Treasury bills, may not trade as effectively as they could when the leverage restriction is applied. Bank regulators are now hard at work to develop a proposal on this important issue.
It is also time that we step back and re-assess the costs and benefits of the liquidity framework. This assessment should identify opportunities to expand the role of loans and other productive assets as collateral for funding during a period of stress, and thereby help get banks back into the business of lending.
We intend to revisit the role of the discount window and the Federal Home Loan Banks, including whether there are opportunities to clarify the role of these funding sources in internal liquidity stress testing and the supervision of banks’ contingency funding plans. Our assessment will also consider whether examiners have developed a bias toward reserves over other liquidity sources and how we can better ensure that liquidity buffers are indeed buffers, not regulatory minimums, that banks can draw down during a period of stress.
While I’ve talked about regulation, supervision, capital, and liquidity, the Treasury Department plans to revisit the other aspects of regulation as well.
As we move forward, we welcome your views on the bank regulatory policy landscape. We want to hear about any banking regulations or supervisory practices that you believe restrain banks’ ability to lend to consumers and businesses, provide access to financial services, and support Main Street economic activity.
All of you in this room are critical partners in helping to support and achieve what this Administration believes is critical – greater economic growth, upward mobility, access to financial services, wealth creation, and prosperity for all Americans.
Thank you for having me here today and more importantly, thank you for everything you do to provide financial services to the American consumers and businesses that rely upon you. Together, we can bring about the Golden Age that the President strives to realize for our great nation.