Revitalizing America’s Economy Through Deregulation

The Bessent Doctrine

Scott Bessent, U.S. Treasury Secretary under the Trump administration, has been outspoken in his push to deregulate the banking sector to promote economic growth. In recent remarks to the American Bankers Association, he compared current financial regulations to a “financial corset” and made it clear his goal is to loosen it.

Bessent’s vision centers on reigniting private-sector-driven growth. He argues that many post-2008 financial regulations are outdated and overly burdensome, prioritizing bureaucratic compliance over economic dynamism. His aim is to empower banks—not just Wall Street giants but the 4,000+ community banks that serve local economies—to drive job creation and prosperity.

One of his key proposals is “regulatory tailoring”—adjusting the rulebook so that smaller banks aren’t subject to the same requirements as the largest institutions. This would allow community banks to lend more freely, fueling growth in towns and small businesses across the country.

Among the regulations Bessent criticizes is the Basel III Endgame capital proposal, which he describes as “arbitrary and excessive.” He argues it outsources U.S. financial policymaking to international bodies, limiting domestic flexibility.

If you, like me, believe in the power of the private sector over government-led solutions, these ideas should be exciting. The administration is targeting a 3% GDP growth rate—well above the long-term trend of 1.8%. Anyone familiar with compound interest knows what a decade of 3% growth could mean for national prosperity.

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A Closer Look: The Supplementary Leverage Ratio (SLR)

Let’s take one example Bessent focuses on: the Supplementary Leverage Ratio (SLR), which requires large banks to maintain a minimum level of capital against all assets, including certain off-balance-sheet exposures.

SLR Formula:

SLR = Tier 1 Capital / Total Leverage Exposure

• Tier 1 Capital is a bank’s core financial strength—mainly common equity and retained earnings.

• Total Leverage Exposure includes all on-balance-sheet assets and certain off-balance-sheet items, without risk-weighting. That means even low-risk assets like U.S. Treasuries count fully in the denominator.

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📘 Capital Example: Breaking It Down

Suppose Bank XYZ has the following:

• Common Shares Issued: $50 million

• Retained Earnings: $30 million

• Adjustments (e.g., subtracting goodwill): –$5 million

• Additional Tier 1 (AT1) Instruments (e.g., preferred stock or contingent convertible bonds): $20 million

Step-by-step capital calculation:

• CET1 (Common Equity Tier 1) = $50M (shares) + $30M (retained) – $5M (adjustments) = $75M

• Total Tier 1 Capital = CET1 ($75M) + AT1 Instruments ($20M) = $95M

Definitions for clarity:

• CET1 is the highest-quality capital, consisting primarily of common shares and retained earnings.

  • For example: If a bank issues 1 million shares at $10, that’s $10 million in equity.

  • If the bank earns $5 million in profit and pays out $1 million in dividends, $4 million goes to retained earnings.

• AT1 Instruments include things like perpetual preferred stock that can absorb losses in times of distress.

If Bank XYZ has $1 billion in risk-weighted assets, then:

• CET1 Ratio = $75M / $1B = 7.5%

• Tier 1 Ratio = $95M / $1B = 9.5%

Both comfortably exceed Basel III minimums, showing strong capital health.

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Why the SLR Matters — and Why It Penalizes Treasuries

The key issue Bessent raises is how SLR treats all assets the same, regardless of risk. Under Basel III's risk-weighted capital ratios, assets like U.S. Treasuries are assigned a 0% risk weight, meaning banks don’t need to hold capital against them. Riskier assets, like corporate loans, may require full or partial capital backing.

But the SLR ignores this. It’s non-risk-weighted, so every dollar of assets—safe or risky—is treated the same in the denominator. Treasuries are counted just like high-risk loans.

This distorts incentives:

• Treasuries, despite being liquid and essential for stress management, take up just as much balance sheet space under SLR as riskier, higher-yielding assets.

• Banks face a penalty for holding low-risk Treasuries, even though they’re crucial for meeting High-Quality Liquid Asset (HQLA) requirements under the Liquidity Coverage Ratio (LCR).

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📊 How Different Regulatory Frameworks Treat Bank Assets

Key Takeaway:

The SLR treats all exposures equally, which can discourage banks from holding low-risk, high-liquidity assets like Treasuries.

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Implications for the Treasury Market

As of 2024, large U.S. banks held $3.6 trillion in U.S. Treasuries. Since 2007, outstanding Treasury securities have grown nearly 4×, and the share of Treasuries in bank balance sheets has expanded from 3% to 11%.

Yet the SLR has not adapted to this new reality, meaning banks' ability to support the growing Treasury market has not kept pace.

If Treasuries were removed from the SLR denominator—as Bessent suggests—it could:

• Free up balance sheet capacity

• Encourage banks to hold more Treasuries

• Lower interest rates by 30 to 70 basis points, easing borrowing costs across the economy

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Conclusion

There may never have been a more pro-business, pro-Main Street administration than the one in office today. Its strategy—deregulation, lower taxes, affordable energy, and rising real wages—has the potential to ignite a lasting economic boom.

Bessent’s target of 3%+ GDP growth isn’t just wishful thinking—it’s entirely achievable if Congress takes action. With that kind of growth comes the chance to revitalize communities, empower small businesses, and unlock a new wave of investment opportunities.

As an investor, I want to be part of that moment. There will always be headlines designed to shake your conviction—tariffs, credit downgrades, geopolitical tension. But much of that is noise. What matters is that this administration is actively working to address the fundamentals—like tackling the debt and rebuilding confidence in the U.S. credit profile.

Ten years from now, I want to look back and say that I stayed focused—and that in my own small way, I contributed to America’s economic renewal.