Biggest banks purchase more Treasuries with borrowed money; reasons to be wary

 

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.

Now the three main US regulators — the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency —

have recommended letting the biggest banks purchase more Treasuries with borrowed money.

They’re also considering excluding all US debt and central bank reserves from capital requirements.

To put it mildly, there are reasons to be wary of these ideas.

Moreover, there are better ways to address dysfunction in the Treasuries market, which is too big to rely on a small number of highly leveraged banks.

Bloomberg editorial 7 July 2025

https://www.bloomberg.com/opinion/articles/2025-07-07/weaker-banks-won-t-stabilize-the-treasury-market

My view is that the vast majority of banks’ capital requirements should be set under the main capital rules (the Basel Endgame), more like other countries. 

Paul J. Davies Bloomberg 27 June 2025

https://englundmacro.blogspot.com/2025/06/how-to-avoid-bank-safetys-death.html



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