• Treasury Secretary Scott Bessent is pushing for a comprehensive reset of the Financial Stability Oversight Council's approach to financial stability.
  • The bipartisan FSOC Improvement Act of 2025 would constrain SIFI designations, making them a last resort after exploring alternatives.
  • Industry groups welcome the reforms, arguing current processes are overly broad and opaque, while regulators simultaneously work on a broader supervisory reset.

A Regulatory Recalibration Takes Shape

U.S. Treasury Secretary Scott Bessent, who chairs the Financial Stability Oversight Council, is signaling plans for what officials describe as a "major overhaul" of FSOC's role, tools, and approach to financial stability. This comes as part of a broader post-crisis regulatory "reset" that aims to better support economic growth and innovation while maintaining core safeguards.

At recent FSOC meetings, Bessent has previewed that the Council will "enhance the member agencies' supervisory and regulatory frameworks," according to people familiar with the discussions. He has criticized the post-2008 framework as having "unduly weighed on banks' ability to serve as effective intermediaries" and called for a regime that is "efficient, effective and appropriately tailored."

Legislative Momentum Builds

Parallel to Bessent's efforts, Congress is advancing the Financial Stability Oversight Council Improvement Act of 2025 (H.R. 3682), introduced by Rep. Bill Foster and Rep. Bill Huizenga. The bipartisan legislation would tighten and rebalance FSOC's authority to designate nonbank firms as systemically important financial institutions (SIFIs) by requiring consideration of alternative measures and company plans before designation.

Industry groups including the Investment Company Institute and Managed Funds Association have publicly backed this FSOC reform push, arguing the current SIFI designation process is overly broad, opaque, and focused on individual firms rather than risky activities. "What institutional investors like us are really focused on is regulatory stability," said one industry representative who asked not to be named.

A Coordinated Supervisory Reset

Regulators at the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation are simultaneously working on what's being called a "supervisory reset"—rethinking ratings systems, easing procedural burdens, and narrowing focus to material financial risks. This coordination across agencies represents a significant shift in how financial oversight will be conducted moving forward.

FSOC's FY 2025 budget of about $19.8 million, up approximately 13.8% from FY 2024, reflects expanded priorities including climate-related financial risk, Treasury market resilience, nonbank intermediation, digital assets, and financial market utilities. The Council is rebuilding and expanding its Secretariat analysis team to monitor, assess, and respond to emerging risks more proactively.

The Path Forward

If Bessent's overhaul succeeds, the U.S. may end up with a more predictable, transparent, and risk-focused supervisory system that relies more on activity-based tools rather than designating individual nonbanks. Expert commentary suggests this represents a "fundamental reset of supervision" that could shape U.S. financial regulation for the next decade.

Correction: An earlier version of this article misstated the percentage increase in FSOC's budget; it is approximately 13.8%, not 15%.