Fed Governor Milan: Had hoped to end QT in October, calls for prioritizing the reform of bank supervision.

Federal Reserve Governor Stephen Miran said in a Bank Policy Institute speech that the Fed should first roll back certain post‑2008 banking regulations (he cited measures such as the eSLR and recent supervisory framework modifications) before re‑engaging on balance‑sheet policy, arguing that overly stringent rules pushed activity into less‑regulated areas. He warned that easing the regulatory burden could lower the optimal level of reserves relative to GDP, allow the Fed to resume reducing its large asset holdings in the future and cut interest‑on‑reserves costs, while endorsing the FOMC’s recent decision to halt quantitative tightening—he had hoped to stop QT in October—and noting the Fed’s 25 bp rate cut at its Oct. 28–29 meeting. The ongoing deregulatory push, Miran said, could materially affect banks’ liquidity management and Treasury intermediation and thus reserve demand and market functioning, even as current policymakers appear unconcerned about the size of the Fed’s balance sheet.

Analysis

Federal Reserve Governor Stephen Miran, in a prepared Bank Policy Institute speech, urged rolling back a series of post‑2008 banking regulations (citing measures like the eSLR and recent supervisory framework modifications) before reengaging aggressively on balance‑sheet policy. He noted the Fed cut its policy rate by 25 basis points at the Oct. 28–29 meeting and supported the FOMC decision to halt quantitative tightening, saying he had hoped to end QT in October and that stopping now need not be permanent.

Miran argued that overly stringent rules pushed traditional banking activity into less‑regulated areas and that meaningful deregulation could reduce the optimal level of reserve balances relative to GDP, permit future balance‑sheet reduction, and lower interest‑on‑reserves costs. He emphasized improving transparency and warned that interactions between regulation, market functioning (including Treasury intermediation), and monetary policy have been underappreciated, implying material effects on bank liquidity management.

The immediate tone is dovish and mildly positive for financials, but Miran conditioned any renewed QT on regulatory adjustments, creating a policy path dependent on legislative and supervisory developments rather than macro indicators alone. Investors should therefore treat potential balance‑sheet normalization as contingent and monitor funding‑market plumbing and regulatory actions for inflection points.

Key Decisions for Investors

• Monitor the timing and substance of regulatory rollbacks (eSLR and supervisory framework changes) closely, since Miran ties any future balance‑sheet reduction to those developments
• Reassess exposures to large U.S. banks and financials as easing capital/liquidity rules could boost profitability, but hedge or limit positions until implementation details and market‑structure effects are clear
• Track funding‑market indicators, bank reserve balances, and Treasury market intermediation metrics as near‑term policy is dovish (25bp cut and paused QT) but reserve demand could decline if deregulation proceeds
• Maintain liquidity buffers and stress‑test portfolios for episodic volatility from regulatory arbitrage and shifts in reserve levels; prefer tactical hedges over large directional bets until regulatory clarity emerges