HOUSE FINANCIAL SERVICES COMMITTEE
For questions on the note below, please contact the Delta Strategy Group team.
On May 7, the House Financial Services Committee (HFSC) held a hearing entitled, “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System,” with Department of Treasury Secretary Scott Bessent as the witness.
Attached is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements and discussion.
Key Takeaways
The following is a summary of the main topics explored in the hearing, with further details in the Discussion section below.
- Bessent described tariffs as a key component of the administration’s economic strategy, particularly when paired with deregulation. He characterized trade deficits as a national emergency, underscoring the administration’s urgency in correcting long-term imbalances. He emphasized that making the Trump-era Tax Cuts and Jobs Act (TCJA) permanent is central to expanding economic opportunity.
- Bessent confirmed ongoing negotiations with eighteen trading partners, saying that several are closing in on agreements. He said negotiations with China will begin on Saturday in Switzerland, led by Treasury and U.S. Trade Representative (USTR) Greer.
- Bessent called for U.S. leadership in digital assets, emphasizing the importance of the global adoption of U.S. best practices. He affirmed continued support for private sector solutions and opposed public sector approaches that distort markets or suppress competition. He underscored the potential for digital assets to drive global demand for the U.S. dollar.
- Committee Chairman Hill (R-AR) criticized the International Monetary Fund (IMF) and World Bank for straying from their mandates, accusing them of “mission creep” under the Biden administration. He cited China’s trade surplus, exchange rate opacity, and predatory lending practices as he called for reforming multilateral financial institutions.
- Bessent called for China to “graduate” from developing country status, citing its position as the world’s second-largest economy. He affirmed that Treasury possesses and will continue to use strong enforcement tools to counter illicit financial operations and impose consequences as needed.
- In discussion with Representative Lucas (R-OK), Bessent characterized the Treasury market as well-functioning despite elevated fluctuations, citing a robust toolkit available to Treasury and the Federal Reserve (Fed) to respond to volatility. On the potential risks of clearing U.S. sovereign debt abroad, he stated that Treasury is actively monitoring developments and sees no immediate threats.
- Representative Lucas also questioned whether the current regulatory environment is discouraging participation in the primary dealer system. Bessent responded that low participation by primary dealers in recent auctions suggests a regulatory issue may be limiting their ability to deploy balance sheet capacity to support Treasury issuance, noting that reforms may be needed.
- Representative Williams (R-TX) urged Secretary Bessent to weigh the cumulative impact of regulatory proposals such as Basel III Endgame, the GSIB surcharge, and leverage requirements, warning that these combined measures could restrict banks’ capacity to support the U.S. economy and compete globally. Bessent cautioned that a one-size-fits-all approach has contributed to stagnation in other countries due to overly tight regulatory frameworks imposed on financial institutions, emphasizing the importance of coordination with the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to ensure global adherence to U.S. best practices.
- Representative Sessions (R-TX) praised the administration for taking meaningful action to correct the de minimis rule, which he described as a loophole allowing Chinese firms to circumvent customs.
- Ranking Member Waters (D-CA) criticized the administration’s lack of transparency in its economic agenda, particularly on trade policy and various agencies’ operations, citing continued chaos in markets. Representative Scott (D-GA) and others cautioned that recent administrative erosion of financial regulatory agency independence.
SUMMARY
Opening Statements and Testimony
Chairman French Hill (R-AR)
Under the Biden administration, the IMF’s management tried to become a “World Bank Lite,” launching initiatives on social policy. In 2021, the IMF’s management gave China over $40 billion in unconditional liquidity, with another $17 billion going to Russia, and around $5 billion each to Iran and Venezuela without Congressional input. No one can say what the true growth rate of China is, the world’s second-largest economy, nor how it manages its exchange rate. It has nearly a trillion-dollar trade surplus and a central bank controlled by a dictatorial party, while opaque predatory lending to developing countries has seen no significant restructuring. The World Bank and Asian Development Bank (ADB) still greenlight a billion dollars per year for Chinese projects. The Trump Administration must end all World Bank and ADB assistance to China by the end of the President’s term. If we care about a “back-to-basics” approach, the banks can go even further by recommitting themselves to public health, education, and infrastructure.
Ranking Member Maxine Waters (D-CA)
The U.S. economy, which had the strongest recovery from the pandemic in the world, is now falling behind. In the first quarter since Trump took office, the U.S. economy shrank, with our GDP decreasing by 0.3 percent. The Secretary is the face of what the Wall Street Journal has described as “the dumbest trade war in history.” U.S. stock markets have experienced the worst first 100 days of any presidential term in more than fifty years. Companies are already running out of inventory, port volume is down, and small businesses may not survive. The Secretary reportedly admitted that Trump’s tariffs on China are “unsustainable,” yet he continues trying to justify them. Americans also deserve to know why Elon Musk has access to Treasury’s payment systems and the Consumer Financial Protection Bureau’s (CFPB) database. The Secretary needs to explain why the administration is dismantling agencies that protect consumers from financial fraud and abuse, and weakening ones meant to support businesses struggling under the weight of your policies.
Treasury Secretary Scott Bessent
America First seeks to expand U.S. leadership in international institutions like the IMF and World Bank. Through this, the U.S. will restore fairness to the international economic system. The core components of the Trump economic agenda are trade, tax cuts, and deregulation. These are interlocking parts of an engine designed to drive economic growth and domestic manufacturing. Tax cuts raise real incomes for families and businesses. Tariffs create an incentive for reshoring jobs and fair trade. Deregulation complements tariffs by making it easier to invest in energy and manufacturing projects. The CPI for energy goods declined in March as did the price index for core goods. By leveraging sanctions, we are choking off the financial lifelines of terrorists, criminals, and hackers from Mexico and Guatemala to China and Iran. In the first 100 days of the new administration, we have set the table for a robust economy that allows Main Street to grow. The key to expanding economic opportunity for all Americans is making TCJA permanent to build a stronger, safer, and more prosperous America.
DISCUSSION
Representative Steil (R-WI): How does leadership in digital assets align with President Trump’s broader agenda, and how do dollar-denominated stablecoins impact dollar dominance? Can you outline conversations with your counterparts abroad regarding their experiences regulating the digital asset space? Bessent: Our goal is to encourage firms to reshore their innovation and best practices without scaling back their ambition to influence the global industry. Numerous things could occur if the U.S. does not lead in this space. As we saw under the previous administration, an entire unregulated and renegade ecosystem sprang up outside the U.S., where illicit actors abused the value of these transfer systems, with real technological loss. The administration’s efforts to promote clear regulatory frameworks for digital assets will contribute to this goal as will ongoing efforts to promote fair access and interoperability of payment technologies across all borders. We will continue to support private sector solutions and discourage public sector solutions that distort markets and stifle competition. There are concerns from other countries that the U.S. is now willing to restore its leadership here. Digital assets could become a substantial source of demand for the U.S. dollar. We have a blueprint for bank regulation and adherence to anti-money laundering laws around the world for financial stability.
Representative Waters (D-CA): Why did you allow DOGE unfettered access to Treasury and CFPB systems? Bessent: I would disagree with you on the definition of “unfettered.” Those granted access at Treasury were designated as read-only.
Representative Huizenga (D-MI): How important is it for America to take the lead on digital assets, especially as we see China leaping ahead? Bessent: The U.S. should be the premier destination for digital assets. Congress is working to create strong market structure so that U.S. best practices can be adopted globally. As with stablecoin legislation, there is speculation that digital assets may generate up to $2 trillion of demand for U.S. government securities over the next few years. I agree that we need to have American best practices set the pace for others to follow.
Representative Velaquez (D-NY): Which countries are you close to striking deals with based on your CNBC statement? Do you expect this deal to be more than memorandums of understanding or fully negotiated trade deals? Bessent: It would be detrimental to U.S. interests for me to answer because the negotiations may still be in process as we speak. There are numerous countries, eighteen of which are important trading partners, and we are moving forward at all deliberate speed with those.
Representative Velaquez (D-NY): Has the U.S. started negotiating with China on tariff reductions? Who from the Trump administration is engaged in those trade discussions, and has the President given you the authority to finalize trade agreements? Bessent: I will be going to Switzerland, and the negotiations will begin on Saturday, so they are not advanced. The trade negotiations will be led by myself and Representative Greer at USTR. Peter Navarro will not be present. President Trump will have the final decision.
Representative Lucas (R-OK): What is your updated assessment of Treasury market volatility? Beyond the potential expansion of the buyback program, are there other authorities that would be helpful in meeting these challenges? Bessent: The market was very well-functioning. It was volatile, but the underlying infrastructure worked quite smoothly. We have a very large toolkit that we can deploy, as does the Fed.
Representative Lucas (R-OK): Can you provide a sense of what regulations the administration is developing to bolster resilience in the Treasury market and when you expect those changes to be announced? Bessent: The auction sizes, or the current issuance sizes, leave us well-positioned to address potential changes in borrowing needs. Investor participation in auctions has been broad, with strong support. Our weighted average maturity is about 61.2 months, which is quite wholesome. We have also implemented a buyback program with two objectives of liquidity support and cash management.
Representative Lucas (R-OK): Do you agree that the administration should consider reforming regulations like the Supplemental Leverage Ratio (SLR) to relieve constraints on market participants in the Treasury market? Bessent: Treasury does not look at that, but I believe it is a high priority for the OCC, FDIC, and Fed.
Representative Lucas (R-OK): As the SEC implements its clearing rule and firms how are you working with the SEC and CFTC to ensure market integrity? Bessent: The Treasury market is a global market, and we welcome new participants. We want to make sure that best practices employed in the U.S. are also employed globally.
Representative Lucas (R-OK): Do you have comments on the clearing of U.S. sovereign debt outside of the U.S. and what risks that could potentially present? Bessent: We are studying that and as of now, we do not believe that it presents a risk, but we will continue our studies and communications.
Representative Lucas (R-OK): Given that primary dealership has become an expensive proposition, should we be looking at ways to make the environment more welcoming for investors seeking to become primary dealers? Bessent: We saw at the recent auctions very low participation by the primary dealers, which tells me that there may be a regulatory function there that is preventing them from using their balance sheet for the benefit of the U.S. Treasury.
Representative Sherman (D-CA): What is your best estimate of when the U.S. will hit the debt ceiling and exhaust its borrowing capacity? Bessent: The so-called “X date” is a moving target, but we are moving onto the warning track.
Representative Sessions (R-TX): Can you speak to any sanctions that are in place or being considered against Russian energy firms related to their sale of products to China? Bessent: The Biden administration exercised a big dichotomy. On one hand, they were giving aid to the government of Ukraine. On the other hand, their sanctions against Russia only targeted some lower-level oil companies, and the price cap that was implemented has never worked.
Representative Meeks (D-NY): Do trade deficits constitute a national emergency? Bessent: Yes, it does when the deficit is persistent and prolonged.
Representative Wagner (R-MO): Why has Treasury’s statutory determination regarding Chinese buyers of Iranian oil not been submitted to Congress? What actions has Treasury taken to combat cooperation between Iran and China on illicit finance and money laundering? Bessent: Since I became Secretary, Treasury has repeatedly sanctioned so-called Chinese teapot refiners that are independent refiners, separate from the state-owned enterprises. We began that program over the past few weeks, and we will continue as needed. The secondary sanctions on these teapot refiners have been significant, and we will continue that.
Representative Scott (D-GA): Have you been instructed by President Trump to refrain from offering a list of viable candidates to lead the FDIC? Bessent: No, I have not been and am constantly reviewing the list of candidates. We have OCC and CFTC nominees.
Representative Barr (R-KY): Based on President Trump’s goal to reprivatize the American economy and concerns about gold plating in the Basel III Endgame, should we pursue capital neutrality, or instead adopt capital levels that promote American competitiveness and support reprivatizing capital? Bessent: The growth of private credit outside the regulated system tells me that many of the current regulations may be too tight, and that business is being pulled into the so-called “shadow market.” We want to safely and soundly expand the regulated financial system and bring these institutions onto equal footing. Predictable capital levels are very important to achieving that.
Representative Loudermilk (R-GA): Does global demand for U.S. dollars and debt, along with the resulting lower borrowing costs, influence the U.S.’s fiscal decision-making in a significant way? Bessent: The unfettered ability to borrow has made us reckless, as there has been very little potential for fiscal discipline. It is possible the market may discipline the U.S. government one day, and the administration is trying to set the country on a path to avoid that.
Representative Loudermilk (R-GA): Is there a policy configuration where the U.S. can retain the key benefits of its exorbitant privilege while also sustaining a balanced export economy? Bessent: Yes. “Exorbitant privilege” does not always result in the lowest interest rates. Japan, China, and most of the EU have interest rates are lower than ours.
Representative Davidson (R-OH): Will you advocate for opposing an increase in the Chinese renminbi’s weight in the basket of currencies used for Special Drawing Rights until China addresses its economic concerns, as proposed in the Chinese Currency Accountability Act of 2025? Bessent: I will be working with Congress on whether additional legislation is needed to address Chinese practices or whether it can be handled through trade negotiations.
Representative Davidson (R-OH): Given concerns about mission creep at IMF, will you work to refocus the IMF on its core mission? Bessent: We need to get back to basics at all multilateral development banks, especially the IMF.
Representative Foster (D-IL): Given the President’s shifting statements, does the administration support a strong dollar or a weak dollar as part of its economic strategy? Bessent: Creating conditions for a strong dollar are important for international competitiveness, but we also must consider bilateral relationships, because in many cases, what appears to be a strong dollar may instead reflect other countries manipulating and suppressing their own currencies.
Representative Rose (R-TN): Given the IMF’s limited success in pressuring China on transparency and debt restructuring, how does Treasury justify continued support for the IMF’s current leadership? Bessent: We are in constant discussions, and it is leadership that I inherited. Thus far, they seem open to the Trump agenda and advancing the issues that most affect the U.S.
Representative Williams (R-TX): How is Treasury working to prevent IMF and World Bank resources from indirectly legitimizing China’s debt-trap diplomacy? Bessent: We are working to ensure nobody who financed the Russian war machine will be eligible for any role in rebuilding Ukraine, especially if that rebuilding is financed by the World Bank.
Representative Williams (R-TX): Are there specific areas where you plan to address concerns with regulations like Basel III Endgame, the GSIB surcharge, and leverage requirements? Bessent: We are looking across all areas and this is at the top of our agenda. Most countries have very concentrated banking systems, with many larger than their GDP and variations in need from the U.S. The strength of the U.S. lending, capital markets, and economy is the breadth and depth of our financial institutions.
Representative Meuser (R-NY): Given concerns that Basel III Endgame and other proposed capital rules could put U.S. banks at an international disadvantage, what is the right level of capital requirements should be? Bessent: We are examining that now, and we will weigh in heavily on the Bank for International Settlements (BIS) and rulemaking entities. This is a one-size-fits-all approach and is one of the reasons we have seen stagnation in many other countries due to the very tight regulatory framework they have placed around their regulated financial institutions.
Representative Kim (R-CA): Given that the Financial Stability Oversight Council (FSOC) replaced the SIFI designation framework with a new approach that overlooks the importance of activity-based standards and cost-benefit analysis, does FSOC intend to reassess the 2023 guidance to better align with the more thoughtful 2019 process? Bessent: That is on our agenda.