Bank Policy Institute

05/15/2025 | Press release | Distributed by Public on 05/15/2025 07:25

BPI Statement Before the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity

Dear Chairman Frank Lucas, Ranking Member Juan Vargas and Honorable Members of the Task Force:

The Bank Policy Institute welcomes the opportunity to provide input to the Committee on its hearing on "Examining Treasury Market Fragilities and Preventative Solutions." Leverage capital requirements, including the supplementary leverage ratio, constrain banks' ability to intermediate in the Treasury market. These capital requirements, which treat all assets the same regardless of risk level, are meant to serve as a backstop, not a binding constraint.

Treasury securities have grown while banks' balance sheet capacity remains limited. The confluence of capital and liquidity regulations has had a contradictory impact on banks' balance sheets, with banks holding lots of Treasuries to meet liquidity requirements but being constrained by capital requirements from actively intermediating. The result: Less capacity for providing liquidity and depth in the Treasury market, and greater risk of market instability in stressful times. Reforming leverage capital requirements, including the SLR - a long-overdue change - would unlock capacity to intermediate and bolster the resilience of this critical market.

We respectfully submit the following resources for your consideration, which further outline our views.

To read the full statement, please click here, or click on the download button below.

BPI Statement for the Record on Treasury Market FragilitiesDownload
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