Leaders of the House Financial Services Committee are seeking to reform the leverage rules at the Federal Reserve and Office of Comptroller of the Currency (OCC).
In a letter to the heads of the Federal Reserve and the OCC, the lawmakers said leverage requirements have not been updated since their inception. At times, they said, the rules have become a binding constraint for large intermediaries of the U.S. Treasury market.
“We write to gain a better understanding of how and when the Federal Reserve plans to adjust leverage requirements to improve Treasury market functionality,” the committee members wrote in the letter.
The letter was signed by U.S. Reps. Andy Barr (R-KY), Ann Wagner (R-MO), Brad Sherman (D-CA), and Bill Foster (D-IL).
“The market for U.S. Treasury securities is the world’s most important financial market,” the lawmakers continued. “The health and liquidity of the U.S. Treasury market has a direct effect on borrowing costs for the U.S. government. Given your comments during your appearance before the House Financial Services Committee and previous efforts by the Federal Reserve to modify leverage ratio requirements, we respectfully request responses to the following questions.”
The key questions they are seeking answers to are as follows:
• What options are the Federal Reserve considering to address the Supplementary Leverage Ratio (SLR), Enhanced Supplementary Leverage Ratio (eSLR), and Tier One Leverage Ratio (T1L)?
• How would the adjustments to the leverage ratios that are under consideration, particularly with respect to U.S. Treasury Securities, affect Treasury market liquidity and stability?
• In addition to adjustments to the leverage ratios, what options are the Federal Reserve considering to increase resilience of the Treasury market and how will those options interact with policy changes put forward by other relevant regulatory bodies, including the Treasury Department and Securities and Exchange Commission?
• Does the Federal Reserve have a timeline for proposing such changes? Do you have a timeframe and goal for completion?”
The lawmakers requested response from the regulators by June 26.