Bowman: Bank regulation impacts treasury market liquidity.

Bowman: Bank regulation impacts treasury market liquidity.

The U.S. Treasury market is experiencing significant regulatory shifts that could influence its liquidity. The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) are considering changes to the enhanced supplementary leverage ratio (eSLR), which applies to the largest U.S. banks. This move aims to bolster banks' roles as intermediaries in the market, particularly in the $29 trillion Treasuries market [3].

The proposed changes include reducing the eSLR for bank holding companies to a range of 3.5% to 4.5%, down from the current 5%, and similarly for their banking subsidiaries, from 6% to the same range. This reduction could provide banks with more capital to invest in Treasuries, potentially increasing market liquidity [3].

The Trump administration has also been exploring adjustments to banking regulations to lower long-term Treasury yields. The administration is considering tweaking the Supplementary Leverage Ratio (SLR) to encourage banks to buy more long-term Treasuries. The SLR requires banks to hold reserves equal to at least 3% of their assets, including Treasuries, with a higher requirement for the largest banks. However, details on how the administration might change the SLR remain unclear [1].

Some experts, such as Steven Zeng from Deutsche Bank, have expressed skepticism about whether lowering the SLR alone will have the desired impact. They suggest that a full carve-out of Treasuries from the SLR would be more effective in bolstering market liquidity. However, such a move could also make the financial system more fragile [3].

Additionally, the U.S. Senate has passed the GENIUS Act, which aims to bring regulatory clarity to the digital assets market, including consumer protections. This could have broader impacts on the financial system, including banks and retailers, as stablecoins gain wider adoption [4].

In conclusion, regulatory changes aimed at increasing Treasury market liquidity are being considered, with potential impacts on long-term yields and market stability. As these changes unfold, the financial world will closely watch to see their effects on the Treasury market and broader economy.

References:
[1] https://www.globest.com/2025/06/23/treasury-yield-battle-heats-up-as-administration-eyes-rule-change/
[2] https://www.investing.com/news/stock-market-news/us-investor-strikes-1-billion-merger-to-create-bitcoin-treasury-company-4105718
[3] https://finance.yahoo.com/news/us-plans-ease-capital-rule-172004995.html
[4] https://kpmg.com/us/en/articles/2025/genius-act-payment-stablecoin-framework-senate-approves.html