WASHINGTON – The Federal Reserve said Friday it would allow ultrasef assets such as Treasury Securities to recreate large bank accounts for up to a year at the end of the month, hurting Wall Street companies that pushed for expansion. Relief.
The decision means that banks will temporarily lose the ability to exclude treasuries and deposits held by the central bank from the so-called supplementary leverage ratios of donors. This ratio measures the capital-funds that banks raise from investors, earned through profits, and as a percentage of loans and other assets. Without exception, treasuries and deposits are treated as assets.
The Fed said it would soon propose long-term changes to the rules for its treatment of ultrasound assets.
“Due to recent developments in the supply of central bank reserves and the issuance of treasury securities, the board may need to consider the current design and calibration of SLRs in a timely manner to prevent the development of stress that hinders economic growth and weakens financial stability,” the Fed said in a statement.
The Fed stressed that overall capital requirements for large banks will not decrease.
Federal Reserve Chairman Jerome Powell told WSJ’s Nick Timiros that there are no plans to raise interest rates unless labor-market conditions are conducive to maximum employment and that inflation is sustained at 2%. (First published 3/4/2021) Photo: Eric Bardat / Agence France-Presse / Getty Images
A year ago, the central bank adopted a temporary exclusion in an effort to boost the flow of credit to disadvantaged consumers and industries and ease tensions in the treasury market as the coronavirus hit the U.S. economy. Since then the market has stabilized.
Banks and their industry groups pushed for expansion for relief, saying without it banks could significantly withdraw from treasury purchases, which would increase the pressure on bond yields that have plagued markets in recent weeks.
They warned that without relief some companies could come close to violating capital requirements in the coming months. To prevent that from happening, they may be forced to buy less treasury or be hesitant about customer deposits, the banks said.
This would allow banks to play a smaller role as intermediaries in the Treasury market, or keep fewer deposits – which they would use to buy the Treasury or the park as Fed reserves – as Congress passed a $ 1.9 trillion relief bill that would push an additional 400 400 billion. Analysts say the stimulus in the depository account leads to payments and further borrowing from the federal government.
Senior Democrats, such as Sherrod Brown, chairman of Ohio’s Senate Banking Committee, and Sen. Elizabeth Warren of Massachusetts, said before the Fed’s decision that the length of the relaxation would be a “serious mistake,” which would weaken postcrisis regulatory governance.
Prior to the Fed’s announcement, Roberto Pearly and Benson Durham of Cornington MacCroney, an investment research firm, wrote:
Large U.S. Banks must maintain a capital of at least 3% of all their assets, including loans, investments and real estate. By keeping banks to a minimum ratio, regulators effectively prohibit them from lending a lot, without raising their capital levels.
Banks are sitting on huge staples of cash, U.S. government debt and other secured assets. By twisting how the ratio is calculated last year, the Fed was trying to engineer a swap effectively. Remove treasuries and central bank deposits from the calculations, the thinking went, and banks should be able to replace them by lending to customers and businesses in the asset pool.
It is not clear what happened. US lenders increased their loan book by about%. %% last year, the slowest pace in seven years, according to Barclays research using data from the Federal Deposit Insurance Corp.
Write to Andrew Ackerman @ Andrew Ackerman at wsj.com
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