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Federal Reserve Speeches·

Bowman, Modernizing Financial Regulation: Initial Observations from eSLR

  • The U.S. Treasury market serves as a foundational element for monetary policy transmission, government funding, & financial system stability.
  • The enhanced supplementary leverage ratio (eSLR) initially acted as a binding constraint on large bank dealers, reducing their capacity to provide Treasury market liquidity.
  • In November 2025, the Federal Reserve Board, FDIC, & OCC finalized reforms to recalibrate the eSLR buffer standard to 50 percent of a GSIB's method-1 surcharge instead of the previous fixed two percent.
  • The new rule became effective April 1, 2026, with seven of the eight U.S. GSIBs adopting it early in the first quarter.
  • Parent bank holding companies of major dealers gained nearly $5 trillion in additional eSLR headroom in the first quarter of 2026.
  • Supervisory data shows dealers' total Treasury positions increased from roughly $600 billion to over $700 billion by the end of April 2026.
  • Market outreach indicates leveraged capacity at GSIBs surged from $1.8 trillion in late 2025 to $6.4 trillion after the rule change.
  • Dealers have increased Treasury holdings & hedged these positions by shorting Treasury futures, reducing reliance on highly leveraged hedge fund trading strategies.
  • Improved market functioning includes narrower bid-ask spreads, reduced intraday volatility, calmer funding conditions, & greater price stability.
  • The reforms eliminate the likelihood of dealers becoming constrained during risk-off events, thereby enhancing market resilience during periods of stress.
  • The Federal Reserve emphasizes that regulations must be continuously reviewed & modernized to prevent unintended consequences & ensure alignment with original objectives.