Treasury Secretary Hints at Easing Bank Capital Rules for US Treasuries
Commentary by Steven Lofchie
Treasury Secretary Scott Bessent signaled that regulators are preparing to ease capital requirements on US Treasuries held by banks.
Speaking on Bloomberg Television’s Wall Street Week, Mr. Bessent said "we are very close to moving" on the supplementary leverage ratio ("SLR"), a rule that requires banks to hold capital against Treasury securities. He highlighted that the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation are addressing the issue.
Mr. Bessent explained that modifying the SLR could reduce U.S. Treasury yields by "tens of basis points," as it would give banks greater flexibility to increase their holdings of government bonds without triggering additional capital charges. He added, "I would think we could see something on that over the summer."
Mr. Bessent emphasized the potential market impact of the change, stating that "we can see more bond buying by U.S. citizens, U.S. institutions." He also remarked that the SLR "had a big effect" when temporarily suspended during the pandemic, reinforcing the importance of the rule’s structure in influencing Treasury demand.
Commentary
Given the size of the US government's debt, it is difficult to see how the regulators can maintain a rule that imposes a non-risk based limit (SLR) on the ability of banks to hold government debt. Of course, eliminating the limit does not deal with the underlying problem - - too much government debt.
Related Articles
-
Before the House Financial Services Committee, Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, witnesses focused on treasury market volatility, treasury market liquidity, and the increase in US debt.
-
FDIC Acting Chair Travis Hill highlighted recent efforts to reform agency policy on De Novo bank formation, digital assets, resolution planning and asset thresholds.
-
Treasury Under Secretary for Domestic Finance Nellie Liang outlined the Treasury Department's ongoing efforts to bolster liquidity in the US Treasury market.
