The Financial Times reported on the 15th that U.S. financial regulators are preparing to announce a reduction in the supplemental leverage ratio (SLR) for commercial banks in the coming months. The report stated that this regulatory easing is the most significant in over a decade.
According to the Financial Times, the supplemental leverage ratio is a capital adequacy measure for commercial banks, aimed at more rigorously assessing bank capital adequacy and preventing excessive leverage. After the financial crisis of 2008-2009, U.S. financial regulators implemented extensive regulatory reforms in 2014, including the introduction of the supplemental leverage ratio.
Nicholas Veron, a senior fellow at the Peterson Institute for International Economics, said that in the current global environment, facing various risks, 'it is far from the right time to relax capital regulation standards.' He believes that for U.S. banks, these risks include the status of the dollar and the direction of the economy.
However, the Financial Times analysis suggests that lowering the supplemental leverage ratio now could help boost the U.S. Treasury market by allowing commercial banks to purchase more U.S. Treasury bonds, thereby reducing the cost of borrowing for the U.S. government.
Reports suggest that this move could also enhance the role of banks in U.S. Treasury trading, thereby diminishing the importance of high-frequency trading firms and hedge funds in the Treasury market. Reports indicate that major U.S. decision-makers have expressed support for lowering the supplemental leverage ratio.
U.S. Treasury Secretary Scott Balson said last week that similar reform measures are a 'high priority' for major financial regulatory agencies. These agencies include the U.S. Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation.
Federal Reserve Chairman Jerome Powell said in February, 'We need to do something about the structure of the U.S. Treasury market, and we feel part of the answer lies in lowering the supplemental leverage ratio standards.'
The supplemental leverage ratio of the eight largest banks in the U.S. currently remains above 5%. The yield on the U.S. ten-year Treasury bond rose to 4.55% on the 15th.
The Financial Times reported that U.S. regulators are also considering another option, which is to exclude 'low-risk' assets such as U.S. Treasury bonds and central bank deposits when calculating bank leverage ratios. Analysts at the U.S. Insight Research Company estimate that this measure could free up about $2 trillion in liquidity on the balance sheets of large U.S. banks.