Banking system has nearly $5 trillion more room—has the money already been released?
A very large figure likely describes “how much more can be done,” not “how much has already been invested.”
On October 1, a speech by Federal Reserve Vice Chair responsible for supervision, Bowman, cited estimates that the holding companies of six primary dealers’ parent banks together obtained nearly $5 trillion in additional eSLR buffer room in this year’s first quarter. This refers to space created after adjustments to the leverage capital rule, not a new injection of cash that has just arrived.
Why does this matter for the market? When banks act as intermediaries in U.S. Treasuries trading, they also need to use their balance sheets. When existing constraints are tighter, even if business risk is relatively low and clients want to execute trades, banks may be unwilling to add positions. After the rule changes, the same capital base can support more of this kind of business.
But permitted expansion is still a long way from actual usage. Bowman also noted that only some institutions channel the newly created room into U.S. Treasuries business. Other capital requirements, funding costs, and business returns may all influence banks’ choices.
For a macro view of BTC, ETH, and SOL, I’m more interested in the transmission outcome: whether the bid-ask spreads in U.S. Treasuries improve and whether there’s more intermediation when the funding markets are tight. Smoother trading can help cushion shocks, but it cannot prove that banks will put all of this “buffer room” into risk assets.
First examine the definition of the additional room, then look at the actual usage and where it goes—so you don’t mistake a capacity estimate for already-placed buy orders.
The accompanying image is a file photo of the Federal Reserve building.
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A very large figure likely describes “how much more can be done,” not “how much has already been invested.”
On October 1, a speech by Federal Reserve Vice Chair responsible for supervision, Bowman, cited estimates that the holding companies of six primary dealers’ parent banks together obtained nearly $5 trillion in additional eSLR buffer room in this year’s first quarter. This refers to space created after adjustments to the leverage capital rule, not a new injection of cash that has just arrived.
Why does this matter for the market? When banks act as intermediaries in U.S. Treasuries trading, they also need to use their balance sheets. When existing constraints are tighter, even if business risk is relatively low and clients want to execute trades, banks may be unwilling to add positions. After the rule changes, the same capital base can support more of this kind of business.
But permitted expansion is still a long way from actual usage. Bowman also noted that only some institutions channel the newly created room into U.S. Treasuries business. Other capital requirements, funding costs, and business returns may all influence banks’ choices.
For a macro view of BTC, ETH, and SOL, I’m more interested in the transmission outcome: whether the bid-ask spreads in U.S. Treasuries improve and whether there’s more intermediation when the funding markets are tight. Smoother trading can help cushion shocks, but it cannot prove that banks will put all of this “buffer room” into risk assets.
First examine the definition of the additional room, then look at the actual usage and where it goes—so you don’t mistake a capacity estimate for already-placed buy orders.
The accompanying image is a file photo of the Federal Reserve building.
$BTC $ETH $SOL
Click my avatar to view live trades with orders