Fed's Miran calls for exempting Treasuries from bank leverage rule

Federal Reserve Governor Stephen Miran urged regulators to exempt U.S. Treasury securities from the enhanced supplementary leverage ratio, arguing the June eSLR proposal should go further because removing Treasuries would insulate the market and prevent banks from being disincentivized to hold safe assets during stress. The eSLR overhaul, part of a deregulatory push led by Vice Chair for Supervision Michelle Bowman, ties capital requirements to a firm's global systemic role but did not adopt a full Treasury exemption; Miran noted regulators used such an exemption during COVID-19 and said it would bolster liquidity and participation in the Treasury market. Miran, recently confirmed to the Fed board and slated to return to the White House when his term ends in January, framed the change as necessary to protect market functioning in turbulent periods.

Analysis

Federal Reserve Governor Stephen Miran on Nov. 19 urged regulators to exempt U.S. Treasury securities from the enhanced supplementary leverage ratio (eSLR), arguing the June eSLR proposal should go further because removing Treasuries would “insulate” the market and prevent banks from being disincentivized to hold those securities in times of stress. The June proposal instead reworked eSLR to tie capital requirements to a firm’s global systemic role and did not adopt a blanket Treasury exemption, though regulators solicited feedback on that alternative. Miran cited the temporary exemption used during the COVID-19 market stress as precedent for improved market functioning.

The push to exempt Treasuries is part of a broader deregulatory effort led by Vice Chair for Supervision Michelle Bowman and comes as Miran, recently confirmed to the Fed board in September, advocates for measures to bolster Treasury market liquidity. If adopted, a Treasury exemption would directly affect banks’ balance-sheet incentives and could increase banks’ willingness to hold Treasuries during episodes of stress, potentially easing liquidity dislocations. Market signals attached to the story show mildly positive sentiment (0.28) and a low-to-moderate market impact score (0.35), reflecting incremental but non-disruptive regulatory uncertainty ahead of a formal rulemaking outcome.

Key Decisions for Investors

• Monitor the formal rulemaking timeline and comment-period signals closely and avoid material tactical repositioning until regulators publish a final decision, as the article indicates the exemption remains under consideration
• If a Treasury exemption is adopted, consider modestly increasing exposure to Treasury-sensitive strategies and select large bank equities that would benefit from lower eSLR-driven capital strain, given the article’s assertion that exemption would boost banks’ willingness to hold Treasuries in stress
• Maintain short-duration liquidity hedges and track bank Treasury holdings and repo spreads as leading indicators of market functioning, because the absence of an exemption could sustain disincentives for banks to hold Treasuries during stress