Dollars beat Endgame

Fed governor pitches for regulatory wind back

A quick one. Yesterday, Fed governor Michelle Bowman laid out a determined argument against further capital imposition on the US banking system - in line with our expectations a few weeks ago in End of Endgame. Her speech clearly aimed at obtaining support from POTUS (and Treasury) for her candidacy as bank regulator at the Fed and was decidedly against Basel III Endgame. At a wider level it also suggests further consolidation of US banking may be approaching.

source: Photo by engin akyurt on Unsplash

In our piece we suggested “It makes sense from a Treasury perspective, to loosen capital constraints on banks because this will help relieve pressure on liquidity in this most important market. Treasury is… incentivised to undermine [Basel 3 Endgame] B3E.” It ties into a long-running concern about unbalanced Treasury dynamics which we covered a year ago, here.

A key problem is daily turnover has not kept pace with the growth in the size of Treasury debt outstanding, reflecting (in part) the constraint on dealers balance sheets.