Contact: Barbara Hagenbaugh
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bhagenbaugh@fsforum.com
ICYMI: Treasury Secretary Bessent calls for Review of Bank Leverage Capital, Other Regulatory Requirements
“We look forward to quick action,” Forum CEO says.
Washington, D.C. – Treasury Secretary Scott Bessent Thursday said the government should review banking regulation and supervision, noting in particular the need to scrutinize leverage capital requirements, which have reduced liquidity in U.S. Treasury markets and led to increased costs across the economy.
Leverage capital requirements “can risk becoming a binding constraint, instead of a backstop,” Bessent told members of the Economic Club of New York. “The result is that the safest asset in the country, U.S. Treasuries, are not treated as such when the leverage restriction is applied. … rigorous analysis must be applied to these regulations if we are to appropriately supervise and regulate our banks.”
Said Financial Services Forum President and CEO Kevin Fromer: “Substantial evidence shows that leverage capital requirements are constraining the leading U.S. banks from helping the government meet its borrowing needs, harming market functioning and liquidity, and increasing the costs of servicing the national debt. This problem should be addressed in the interests of taxpayers and the economy. We greatly appreciate the Secretary’s attention to this issue and look forward to quick action.”
Experts have long expressed concern about the harmful effects of leverage capital requirements and called for their reform. During COVID, the banking agencies enacted a temporary fix to maintain liquidity in the Treasury markets, and despite pledging nearly four years ago to consider permanent changes, the Federal Reserve has not acted. Federal Reserve Chair Jerome Powell in testimony last month said “it’s time to move” on reforming leverage capital requirements.
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