The US Treasury Department assesses the impact of SLR regulation and plans to optimize the liquidity response mechanism in the US bond market

The Zhitong Finance App learned that US Deputy Treasury Secretary Michael Faulkender said on Tuesday that relevant officials are currently discussing the impact of the supplementary leverage ratio (SLR) on the $29 trillion US Treasury bond market. The focus is on studying whether this regulation will restrict the market during periods of market pressure.

Faulkender pointed out that the purpose of the current investigation is to assess whether SLR will unnecessarily restrict the liquidity and carrying capacity of the treasury bond market when market pressure increases.

SLR is a regulatory indicator that requires financial institutions to reserve a certain percentage of their capital reserves for assets such as US Treasury bonds. During the COVID-19 crisis, the US Federal Reserve temporarily suspended this provision to release market liquidity, but enforcement has since resumed.

Many market participants worry that the continued application of SLR may weaken the ability of major traders to make markets, which will have a negative impact on the liquidity of the treasury bond market. Faulkender's statement shows that the Ministry of Finance is listening carefully to and evaluating these market concerns.

He said, “The question we keep asking ourselves is whether there is enough liquidity to inject into the market during times of market fluctuations or when some kind of stressful event occurs.” He further pointed out that if SLR is proven to be “overly binding” during periods of market pressure, then policymakers may look into ways to improve the treasury bond market's ability to handle high trading days.

This statement may mean that in the future, the Treasury Department and the Federal Reserve are expected to re-examine the scope of application and flexibility of SLR to ensure that the US Treasury bond market can maintain steady operation at critical times to meet market liquidity needs.