As prepared for delivery
I would like to call this meeting of the Financial Stability Oversight Council to order.
Today is the Council’s first public session this year, which is fitting—the start of September is a natural moment for renewal and fresh focus. In that spirit, I’d like to discuss how economic growth strengthens financial stability—and how economic stagnation puts it at risk. Understanding these dynamics is key to advancing FSOC’s mission.
Before we start, I’d like to have a moment of silence for the friend of many people in this room, Charlie Kirk, and the tragic incident that happened today. My heart is with the Kirk family during this devastating time. Inexcusable violence belongs nowhere in a civilized society. Charlie is a brave young man, a devoted husband, a loving father, and a great patriot. Please join me in praying for Charlie, his family, and our country. Thank you all.
Warren Buffett has a penchant for spotting risk before others. He attributes his success in this arena to identifying what he calls “the ABCs of decay:” arrogance, bureaucracy, and complacency.
If allowed to metastasize, Buffett says, these cancers lead to stagnation. And stagnation leads to collapse. That’s why companies—just as countries—must constantly guard against stagnation.
Yet regulators too often overlook the threat economic stagnation poses to financial stability. And they come to regret it later.
History is replete with examples: the Latin American Debt Crisis of the 1980s; Japan’s “Lost Decades;” and the Eurozone Debt Crisis. In each instance, a period of stagnation or depressed growth precipitated financial calamity, including bank failures, currency devaluations, and sovereign debt crises.
These cautionary tales provide a powerful lesson for FSOC. As the country’s systemic risk watchdog, we cannot overlook the significant risk economic stagnation can pose to financial stability. Stagnation can make it harder for businesses and consumers to service private debt. It can raise questions about the sustainability of public debt. It can dampen earnings expectations, reducing asset values. It can lead to investors demanding higher risk premiums. These dynamics can reinforce one another, increasing a cycle of pessimism that spreads stress across the financial system.
By contrast, a dynamic, innovative, and entrepreneurial economy is better able to withstand shocks. Growth is the antidote to stagnation. Which is why expanding economic growth must be among FSOC’s top priorities. Wage gains, increasing business earnings, higher tax revenues, reduced fiscal demands, and lower risk premiums all create buffers—both economic and psychological—that support a resilient financial system.
With a focus on economic growth, in the coming year, the Council will consider ways to enhance the member agencies’ supervisory and regulatory frameworks, as well as other efforts to position banks and other regulated entities to foster innovation and further support economic growth.
Our financial system must also be secure against internal disruptions and external threats. The Council’s work on economic security will include a focus on the resilience of our critical financial markets, including the Treasury, fixed-income, and equity markets, and the resilience of our critical market infrastructure.
To this end, the Council will develop an interpretation of financial stability that will incorporate economic growth and security as key pillars.
And so we will revisit the guidance and analytic framework that the Council adopted in 2023, to promote alignment with our new direction. Under my leadership, the Council is committing to procedural rigor where the nonbank designation power is concerned. There are other statutory tools at the FSOC’s disposal, such as its power to issue recommendations to member agencies, that can, if needed, mitigate the financial stability risks associated with certain financial activities. This tool is more tailored and precise than the designation power, which singles out individual institutions for designation and subsequent regulation by the Federal Reserve.
I thank my fellow Council members for your cooperation in advancing the Council’s new growth and economic security agenda for the ultimate good of all Americans, from Wall Street to Main Street.