As an important aside, proposed changes to the Supplementary Leverage Ratio (SLR) for big US banks can add to bank demand for Treasuries and Repo. That said, banks won’t rush to buy. A skew on balance sheets is more likely to be gradual. Banks are lenders first, and credit hasn’t been notably constrained, especially with high reserves.
Is this impactful for Treasuries? For sure, if up-front inflows dominate. But a more gradual application would be less impactful. Still, it’s a positive impulse. Just as the backing of stablecoins with Treasury bills is a positive for bills demand in the medium term, it also has a potential multi-trillion-dollar demand effect. Again, a positive. But this will only have a meaningful impact if accelerated, as supply is increasing significantly too.
It can also impact the weighting between bank cash reserves and their holdings of Treasuries. We’ll continue to monitor this important space.
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