Powell Says Key Capital Rule Change May Aid Treasuries Market

Federal Reserve Chair Jerome Powell said Tuesday that potential changes to a key capital buffer should bolster banks’ roles as intermediaries in the US Treasuries market.

“When the leverage ratio is binding, it discourages banks from undertaking low-margin, fairly safe activities such as mediation in the Treasury markets,” Powell said at a House Financial Services Committeehearing. “This should encourage more mediation.”

The Fed and other banking agencies are poised to unveil a plan this week to decrease what’s called the enhanced supplementary leverage ratio, which requires banks to hold a certain amount of capital relative to their assets.

WATCH: Federal Reserve Chair Jerome Powell says potential changes to the enhanced supplementary leverage ratio (eSLR) should encourage banks to mediate in the Treasury markets.

Source: Bloomberg