Under increasing pressure from the Treasury and the White House, the Federal Reserve Board of Governors on June 25 released a plan for public (i.e., Wall Street) comment, to reduce the systemically important banks’ enhanced [since 2009] supplementary leverage ratio (SLR). This sets the lower limit on the reserves these banks must have, relative to their “risk” assets. They would “de-enhance” it by what Treasury Secretary Scott Bessent publicly hoped, that day, would be trillions of additional dollars freed up for the big banks to throw into the Treasury market.
These banks, many of which are prime brokers for that Treasury market, have withdrawn from it to various degrees, preferring to make short-term loans to hedge funds and other prime speculators to play with financial derivatives based on Treasuries. The banks have used the enhanced SLR as an excuse. Now the Fed is being pressured, not only by direct Trump attacks on Chair Jerome Powell, but also by White House rumors that Trump will announce Powell’s 2026 replacement now, to act as a loud “shadow Fed chair” calling for rate cuts. Several members of the Fed’s Federal Open Market Committee are already on that side.
