Bowman says leverage rule change lifted dealer Treasury positions above $700bn
Victoria Shinder2 min readThe Federal Reserve's Vice Chair for Supervision, Michelle Bowman, gave a first assessment on 1 October of how last year's change to the enhanced supplementary leverage ratio has affected the US Treasury market. Her verdict, delivered at an Atlantic Council summit in Washington, is that the recalibration has improved market functioning and resilience by relaxing balance-sheet constraints on the large bank dealers.
The eSLR applies only to US global systemically important banks. It originally required a leverage ratio of at least 3% plus a 2% buffer at the holding company, and 6% at insured bank subsidiaries to be well capitalised. Bowman argued that because the rule is blind to risk, it often became a binding constraint rather than a backstop, pushing banks away from low-risk, low-return activities such as intermediating Treasuries. In November 2025 the Fed, the FDIC and the OCC set the holding-company buffer at 50% of each bank's method-1 GSIB surcharge instead of a flat 2%. The rule took effect on 1 April 2026; seven of the eight GSIBs adopted it early in the first quarter.
The numbers she cited: by some estimates the parent holding companies of six dealers gained nearly $5 trillion of additional headroom in aggregate in the first quarter. Supervisory data show dealers' total Treasury positions rising from roughly $600 billion at the start of the modification period to over $700 billion at the end of April, with the increase concentrated among the firms that had kept the lowest buffers. A forthcoming staff note reaches the same conclusion. One dealer told the Fed that leveraged capacity at the GSIBs went from $1.8 trillion in the fourth quarter of 2025 to $6.4 trillion. Bowman also noted that only a few of the GSIBs used the extra capacity for Treasury activities.
She said dealers have increased cash Treasury holdings while shorting futures, likely absorbing some positions previously held by hedge funds in the basis trade, and pointed to narrower bid-ask spreads, lower intraday volatility around auctions and calmer funding conditions. Market participants, she said, value the change mainly for removing the risk of becoming constrained during stress.
Why it matters
The eSLR change was criticised as a capital giveaway. Bowman's answer is data on positions, not capital, and it is the first official measure of whether the relief went where it was promised. Her own caveat, that most banks did not use it for Treasuries, will be the critics' point.