U.S. Deputy Treasury Secretary: Discussing the applicability of SLR to the U.S. Treasury market.

On April 15, U.S. Deputy Treasury Secretary Michael Faulkender said that officials are discussing the application of supplementary leverage (SLR) in the $29 trillion U.S. Treasury market, and officials are investigating the binding force of SLR when the market is under pressure. Speaking at an event at the Investment Company Institute, Faulkender said, “We are looking into the matter and have started discussions.” During the pandemic, the Fed paused the application of SLR to US Treasuries, but this measure has now been reinstated. Many market participants said that the rule, which requires financial institutions to set aside certain reserves for their positions in U.S. Treasuries, weakens the ability of major dealers to make markets, which in turn affects market liquidity. “We’re constantly asking ourselves the question of whether there’s enough liquidity coming into the system when the market is volatile or stressful events,” Faulkender said. If the SLR is unnecessarily constraining in times of market stress, is there a way to increase the bond market’s ability to carry high volumes on a single day? ”