Federal reserve chair supports bank rule change to boost treasury market

Federal Reserve Chair Jerome Powell spoke at a House Financial Services Committee hearing in Washington, D.C. He shared that a proposed change to a major banking rule could help banks play a bigger role in the U.S. Treasuries market. The rule, known as the supplementary leverage ratio, sets the amount of money banks must hold to cover their activities.

Powell explained that this rule sometimes stops banks from taking part in safe, low-profit activities like trading Treasuries. By adjusting this rule, banks could act as middlemen in the $29 trillion Treasuries market more easily, which might stabilize it. Powell noted that the change could lower Treasury yields by 30 to 70 basis points, as suggested by Treasury Secretary Scott Bessent.

However, he was cautious about removing Treasuries from the rule’s calculations entirely, saying more discussion is needed. Powell’s comments come as regulators plan to reduce this capital requirement by up to 1.5 percentage points for the largest banks. This follows concerns that the current rule limits banks’ ability to trade Treasuries, which are seen as safe investments.

The goal is to make the market stronger without risking banks’ financial health. Powell emphasized that the Federal Reserve is open to feedback on how to balance these changes to support both banks and the economy.