Treasury Secretary Plans to Play Bigger Role in Bank Regulation

The U.S. Department of the Treasury is reportedly planning to take a greater part in regulating banks in the United States.

The goal is to make sure lending policies better align with the risk facing financial firms, Bloomberg reported Wednesday (April 9).

“Bank regulation has not taken effects on economic growth into account,” said Treasury Secretary Scott Bessent at an American Bankers Association event Wednesday, per the report. “That in turn has meant less lending, slower wage growth, more inflation and fewer opportunities for American families.”

Banks contend that some of Washington’s tactics have harmed their industry, according to the report. Bessent told his audience this is bad for average Americans.

“To ensure that Main Street matters more in bank regulation, I and the rest of the Treasury team will devote the necessary time and attention to the quite technical, substantive aspects of regulatory reform,” Bessent said, per the report.

Among his department’s plans are reviewing rules at bank regulators to make sure they focus on material financial risks as well as efforts to improve bank supervision examinations.

Meanwhile, there are potential risks to the so-called shadow banking system, which encompasses nonbank lenders, hedge funds, money market and private equity vehicles, PYMNTS reported Wednesday.

Private credit within shadow banking is gaining momentum, with new funds launched across a variety of lenders. Tariff-induced liquidity shocks may hit the corporate borrowers who borrow from those private vehicles, which could add stress to the financial system at large.

The actual size of the shadow banking sector varies according to different estimates. However, the Financial Stability Board found the nonbank financial intermediation sector is tied to $239 trillion of assets.

More narrowly defined, “other financial intermediaries,” including funds that are largely unregulated, harbor assets of $68 trillion. At least one estimate places the size of China’s shadow banking system at about $8 trillion.

Private credit makes up about $2 trillion in investments worldwide and represents about 12% of bank loans to non-financial corporations. As for banks’ entries into the private credit sector, the push provides a way to offset the share of lending they are losing to alternative channels.