07-07-2025
Weaker Banks Won't Stabilize the Treasury Market
As Congress sheds what remains of its fiscal restraint, America's pile of government debt is growing bigger and more precarious by the day. Regulators suggest that freeing the largest banks to own and trade more Treasuries will supply some useful ballast. It's more likely to inject added risk into the financial system, at an already perilous moment.
In the aftermath of the 2008 financial crisis, the biggest banks were required to fund at least 5% of their total holdings with equity instead of borrowed money. This so-called enhanced supplementary leverage ratio is meant to safeguard banks in case their other capital measures, which are calculated by estimating the riskiness of their assets, prove insufficient. The megabanks contend that the ratio has become too restrictive and impedes them from making markets in Treasuries during times of stress.
