Analysis-Trump fuels bank leverage rule reviews with a focus on the US
By a bold whisker
NEW YORK (Reuters) – The Trump administration’s pledge to contain long-term yields has strengthened bond market expectations that over the years regulatory changes to bank leverage requirements will ultimately loom.
Some traders may be focused on the review of Supplementary Leverage Ratios (SLR) immediately by regulators. This is a rule that requires US banks to hold an extra layer of capital that absorbs losses on US government debt and central bank deposits.
Possible policy changes mean that if a bank holds a safe asset like the Treasury, the bank does not have to throw away the extra money.
This could ultimately help to lower our Treasury revenues, and some investors and analysts are likely to hold the Treasury in the bank and increase demand. By giving it a leeway, it said.
The forecast focused last week on US Treasury Secretary Scott Bescent’s administration, including 10-year Treasury yields, global financial market building blocks and consumer borrowing costs benchmarks After saying that, my prediction came.
The White House and the Treasury Department did not immediately respond to requests for comment.
Ryan O’Malley, head of portfolio management at Ducenta Squared Asset Management, said potential reviews of SLRs are positive for the financial market and other debt assets, and benefit from banks releasing their balance sheets. He said he would accept it.
“It would increase demand for the Treasury and other assets, and would probably strengthen the bank’s credit profile,” he said.
The SLR was introduced as part of a regulatory effort following the 2008 global financial crisis. But over time, many Treasury participants have come to see it as a major obstacle for banks providing liquidity to traders, especially when volatility is growing.
The Bank Policy Institute (BPI), the industry association representing large US banks, re-adjusting the ratio in a recent paper, particularly given the prospect of an increase in government debt issuance due to large budget deficits. said it is important to maintain market function.
“We believe that changes to the SLR can be made relatively quickly,” Francis Cocovas, executive vice president and head of research at BPI, told Reuters in an interview.
SLRs should be at the top of the list of capital priorities for US regulators, Covas adds, referring to the Federal Reserve, the office of the Secretary of Currency, and the Federal Deposit Insurance Corporation.
The spread extension of swapping rates against Treasury yields has been expanding recently, and is a sign that investors are beginning to predict rules reviews. Interest rate swaps allow traders to hedge the risk of interest rates by swapping variable rates for fixed rates or vice versa.