Bessent Sees Easing Capital Rule on Treasuries This Summer
(Bloomberg) -- Treasury Secretary Scott Bessent said that US regulators this summer may ease a rule that's served as a constraint on banks' trading in the $29 trillion Treasuries market.
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'We are very close to moving' on the so-called supplementary leverage ratio, Bessent said on Bloomberg Television's Wall Street Week with David Westin. He noted the three main bank regulators — the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. — are addressing the issue.
'I think we could see something on that over the summer,' he said.
In markets, a popular hedge-fund bet that Treasuries will perform better than interest-rate swaps took a slight leg up on Bessent's remarks. The wager, which had been shaken this week by a surge in long-dated yields, has hinged on a potential move by the Trump administration toward adjusting the SLR. Thirty-year US yields were trading at about 5.02%, with the spread against comparable-maturity SOFR swaps climbing by about two basis points on Bessent's timing guidance.
Tweaking the SLR, which requires banks to hold capital when they trade against their investments in Treasuries, could reduce US Treasury yields by tens of basis points, Bessent said.
The SLR doesn't have risk weightings for assets — meaning it applies evenly to US government debt, which is widely regarded as the benchmark asset for the global financial system. Banks have argued the capital rule crimps their ability to add Treasuries in stressful times, as they are treated in line with much riskier assets.
The SLR's applicability to Treasuries was suspended during the Covid crisis, but it's since been reinstated. Bessent and Federal Reserve Chair Jerome Powell have previously expressed support for tweaking the rule.
While the change may give banks greater appetite for Treasury bonds, it's unlikely to have a large impact on their overall capital requirements, because they also face risk-weighted rules and annual stress tests that help set minimum capital levels.
--With assistance from Sydney Maki and Michael J. Moore.
(Updates with details throughout.)
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