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Report
Evidence That Relaxing Dealers’ Risk Constraints Can Make the Treasury Market More Liquid
This brief studies how regulation involving bank capital requirements affects the behavior of bank-affiliated primary dealers in the Treasury market. Specifically, it looks at the potential effects of changes to the supplementary leverage ratio (SLR) requirement, which determines how much capital a bank must hold in relation to its overall exposure, including exposure in its trading assets such as Treasuries. The SLR is a measure of a bank’s ability to absorb losses during periods of financial stress; the Federal Reserve sets a minimum requirement for the SLR to help protect the stability ...
Working Paper
Balance-Sheet Netting in U.S. Treasury Markets and Central Clearing
In this paper, we provide a comprehensive investigation of the potential for expanded central clearing to reduce the costs of the supplementary leverage ratio (SLR) on Treasury market intermediation in both cash and repo markets. Combining a detailed analysis of the rules involved in calculating the SLR with a unique set of regulatory data, we conclude that expanding central clearing would have relatively limited effects on the level of SLRs. We do find intermediaries’ increase their balance sheet netting when their regulatory balance sheet costs are higher. Our data permits us to ...
Discussion Paper
Have Dealers' Strategies in the GCF Repo® Market Changed?
In a previous post, “Mapping and Sizing the U.S. Repo Market,” our colleagues described the structure of the U.S. repurchase agreement (repo) market. In this post, we consider whether recent regulatory changes have changed the behavior of securities broker-dealers, who play a significant role in repo markets. We focus on the General Collateral Finance (GCF) Repo market, an interdealer market primarily using U.S. Treasury and agency securities as collateral. We find that some dealers use GCF Repo as a substantial source of funding for their inventories, while others primarily use GCF Repo ...