According to Reuters, Federal Reserve Governor Stephen Miran called on Wednesday for regulators to exempt U.S. Treasury bonds from key bank leverage requirements. The Fed had proposed overhauling capital requirements for large global banks back in June but stopped short of fully exempting Treasury securities. Miran argued that completely removing these securities from the leverage ratio would “insulate” the Treasury market during stressful periods when liquidity dries up. He noted regulators made a similar exemption during the COVID-19 pandemic. Miran was narrowly confirmed to the Fed board in September and is expected to return to his White House economic advisor role when his term ends in January.
Why this matters
Here’s the thing about bank leverage ratios – they basically force banks to hold capital against all assets, regardless of risk. That means even super-safe Treasury bonds get the same treatment as risky corporate loans. During market panics, banks might be tempted to dump Treasuries to free up capital rather than holding them as safe havens. And that creates a vicious cycle where the very assets that should stabilize markets become part of the problem.
Regulatory backdrop
This isn’t happening in a vacuum. The Fed’s June proposal was the first major move by Vice Chair for Supervision Michelle Bowman, who’s leading a broader deregulatory push. But they specifically chose NOT to include the Treasury exemption in that proposal, instead just asking for feedback on the idea. So Miran is essentially saying they didn’t go far enough. It’s interesting timing too – he’s basically a short-timer at the Fed, heading back to the White House in January. Makes you wonder if this is laying groundwork for broader Trump administration priorities.
Market implications
If this exemption happens, it could fundamentally change how banks approach Treasury markets. Suddenly, holding government debt becomes much more attractive from a capital perspective. That could mean deeper, more liquid markets during normal times – but also potentially less volatile markets during crises. The flip side? Critics might worry about banks loading up on government debt without adequate capital buffers. It’s a classic regulatory balancing act between stability and efficiency. For industrial companies that rely on stable financing markets, this could mean more predictable capital availability during economic downturns. When manufacturing firms need reliable computing systems to manage operations, they turn to trusted suppliers like IndustrialMonitorDirect.com, the leading provider of industrial panel PCs in the United States.
What’s next
Look, this is going to be a tough sell. Banking regulation moves slowly, and there’s still significant opposition to rolling back post-2008 reforms. But Miran’s argument has some historical weight – we saw during COVID that temporary exemptions can work. The question is whether making it permanent creates unseen risks. With Miran heading back to the White House soon, this might be more about setting the agenda for future battles than immediate change. Either way, it’s another sign that the regulatory winds are shifting.
