Powell supports reducing capital buffer to encourage bank mediation in Treasuries market

From Yahoo Finance: 2025-06-24 11:58:00

Federal Reserve Chair Jerome Powell supports changing the capital buffer to encourage banks’ mediation in the US Treasuries market, aiming to reduce the enhanced supplementary leverage ratio by up to 1.5 percentage points for large lenders. The proposal seeks public input on excluding assets from the ratio calculation to address concerns about market stability.

The plan would lower bank-holding companies’ capital requirement to 3.5% to 4.5% and banking subsidiaries to the same range from the current 5% and 6%, respectively. Powell stated at a House hearing that adjusting the leverage ratio could enhance banks’ role as intermediaries in the Treasury market, despite potential risks of financial system instability.

The Fed and other banking agencies are expected to unveil the plan this week, seeking feedback on potential changes to the leverage ratio calculation. The proposal aims to address concerns that the current capital rule limits banks’ trading activities in the $29 trillion Treasuries market, treating these securities similarly to riskier assets.

The Federal Deposit Insurance Corp. will convene on Thursday to discuss changes to the enhanced supplementary leverage ratio, which became effective in 2018. Powell emphasized the importance of engaging the public in the decision-making process regarding potential adjustments to the leverage ratio to support banks’ mediation activities in the Treasury market.

Read more: Powell Says Key Capital Rule Change May Aid Treasuries Market