When Treasury Secretary Scott Bessent sat down to rewrite the mandate of the Financial Stability Oversight Council, he chose a different opening line than the one that gave the council life: not prevention of another 2008-style collapse, but the removal of what he called "undue burdens" on growth.
In a letter circulated ahead of an FSOC meeting on Thursday, Bessent laid out a proposal to steer the council away from its long-standing posture of tightening oversight and toward a posture that actively looks for regulatory frictions that could be relaxed to spur economic growth. The shift is striking because FSOC was created after the financial crisis explicitly to identify systemic risks and to coordinate agency action to head them off. Now, the chair — who by statute is the Treasury secretary — wants the council to treat some rules as obstacles rather than protections.
A new mission for FSOC
Bessent’s plan reframes the council’s work: instead of primarily hunting for systemic vulnerabilities, FSOC would "work with and support member agencies in considering whether aspects of the U.S. financial regulatory framework impose undue burdens and negatively impact economic growth," according to excerpts of the letter. He also announced the formation of a dedicated working group to explore how artificial intelligence might strengthen the resilience of the financial system — while keeping an eye on AI-driven risks.
That blend of deregulatory zeal and upbeat AI optimism reflects the administration’s broader priorities. Advocates say loosening certain regulatory constraints could free capital, make markets more efficient and accelerate lending. Skeptics see a shortcut to the same kind of regulatory gaps that helped supercharge the housing bubble and the shadow-banking run-up before 2008.
FSOC’s authority reaches across banks, insurance firms and systemically important nonbank companies, and its influence often depends on quiet coordination among member agencies. By encouraging agencies to question whether rules are unnecessarily burdensome, Bessent is effectively asking them to trade some prudential caution for growth-minded review. That will likely put federal banking regulators, state officials and market watchdogs in the same room — but not necessarily on the same page.
Why critics are sounding the alarm
Consumer and financial reform groups were quick to condemn the move. Better Markets, a nonprofit set up after the 2008 crisis, called the proposal a gutting of FSOC’s mandate that risks making financial bubbles and crashes more likely. Their argument: durable growth depends on a well-regulated financial sector that channels credit to the real economy; loosening guardrails tends to produce concentrated, short-term gains for finance rather than broad-based prosperity.
The criticism highlights a core tension in regulatory politics. When oversight tightens, the industry pushes back about costs and competitiveness. When oversight loosens, history — and some economists — warn that risk-taking migrates into less visible corners of finance, creating new avenues for contagion. The council’s new direction could also reignite debates about designating nonbank firms as systemically important and about regulatory arbitrage between state and federal regimes.
Politics will matter. The proposal dovetails with deregulatory themes favored by the current administration, and it lands at a time when markets are sensitive to both growth signals and regulatory unpredictability. The practical effect will depend on how much buy-in Bessent can secure from the council’s members — chairs of other agencies who may resist a wholesale reorientation.
AI: guardrail or accelerator?
Perhaps the most forward-looking element is the AI working group. Bessent wants FSOC to explore opportunities where AI could make the system more resilient — from stress-testing and fraud detection to faster identification of liquidity strains — while also monitoring for novel risks that AI adoption could introduce.
That mandate recognizes a basic fact: financial institutions are among the most data-intensive organizations on earth, and AI tools are being integrated fast. The broader tech world is racing to put AI into user-facing and backend products alike — from the conversational tools Google is testing in browsers to large-model features that reach into email and cloud storage. Those experiments outside finance can presage both helpful advances and new systemic vulnerabilities in areas such as model opacity, concentration of infrastructure, and cascading automated decisions. See how companies are layering AI into everyday tools like Google’s AI Mode and the growing role of models such as Gemini in enterprise workflows in pieces like Gemini’s Deep Research integration.
FSOC’s AI effort could be benign and constructive: improving oversight capabilities, helping regulators use machine learning to spot stress earlier, and coordinating standards for model testing and third-party dependencies. Or it could become another pathway for private-sector innovation to outrun regulation, creating undiscovered interconnections between fintech platforms, cloud providers and market infrastructure.
What this means in practice
Change at FSOC won’t be instantaneous. The council operates by committee and consensus, and Bessent’s proposal is as much a policy signal as a binding rule. Expect a period of study, hearings, and perhaps targeted rollbacks or reinterpretations of existing rules — particularly those governing nonbank entities and compliance costs that industry argues choke growth.
For investors and market participants, the immediate consequence is regulatory uncertainty mixed with an explicit invitation to lobby. For consumers and smaller businesses, the consequences will depend on where loosened oversight lands: if it frees up credit for Main Street, that will be touted as a win; if it concentrates leverage in lightly supervised corners of finance, the risks could be systemic and slow to surface.
This is a deliberate gamble: trade some of FSOC’s defensive posture for what its proponents call a pro-growth stance, and bring AI into the toolkit to keep pace with technological change. Whether that gamble pays off — or becomes the opening act of the next crisis — will be a story to watch as the council implements the new direction and as regulators wrestle with the dual challenge of fostering growth and preserving stability.