In Washington, an active discussion is ongoing about the role of the U.S. Federal Reserve System and whether an overreach of regulatory powers by the Fed touches the banking sector. Scott Bessent, a former financier and close adviser to the administration, published an essay urging a reduction of some of the Fed’s powers in regulating banking activity.

In a Wall Street Journal article, Bessent argues that the Fed has deviated from its core mission – to ensure full employment, price stability, and moderate long-term interest rates. He writes that today the regulator influences lending and the profitability of banks under its supervision, which creates a constant conflict, blurs accountability, and undermines independence.

The Federal Reserve now regulates, lends to, and determines the profitability of the banks it supervises, which is an inevitable conflict that blurs accountability and undermines independence.

– Scott Bessent

There should also be an honest, independent, impartial review of the entire institution, including monetary policy, regulation, communications, staff, and research.

– Scott Bessent

Historically, when the Fed was created in its modern form in 1913, bank supervision and regulation were not among its primary duties. Yet over time, during crises – the Great Depression and the Great Recession – the regulator gained greater control over the banking system, and today the Fed’s role in this area leaves room for questions and discussion.

Proponents of the Fed emphasize that the stability of the financial system is closely linked to the nation’s overall financial stability – that is what they consider part of the Fed’s mission as an institution.

As of today, bank supervision is spread among the Fed, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).

The determination of who should conduct the Fed’s review and what exactly it should cover remains a topic of discussion. In a Fox Business interview on August 27, Bessent noted that he “encouraged the head (Jerome) Powell to do this on an internal basis before an external review.”

During a regulatory banking conference in July at the Fed’s headquarters in Washington, Fed Chair Jerome Powell said that effective rules for banking “help maintain a safe, sound, and efficient banking system for the benefit of the people we serve.”

Powell also stressed that any changes to the Fed’s functions or structure – including with regard to the priority of full employment or the ability to regulate banks – would depend on Congress.

Although Powell voiced caution about concentrating bank supervision in a single member of the Board of Governors, appointed as vice chair for supervision, the issue continues to spark a lively debate in political and economic circles.

There are seven members on the board, and with changes to appointments there will be some shifts in regulatory approach. Reducing everything to a single person, even for the Board’s recommendations, could lead to volatility – and that is not ideal for the institutions we want to regulate.

– Jerome Powell

Michelle Bowman is currently serving as the Fed’s Vice Chair for Supervision. She was appointed earlier this year, and among her steps is initiating a comprehensive review of capital requirements for the country’s largest banks.

In the context of discussions about regulating the U.S. banking sector, new materials and expert commentary are emerging, underscoring the topic’s relevance and possible scenarios for the development of monetary and regulatory policy.

This topic continues to be considered by experts and analysts in the financial sector, as the future of banking regulation may determine the path of financial stability and confidence in the U.S. economy.