In the steady hum of Washington policy debates, where economic stability meets the push for efficiency, Federal Reserve Governor Stephen Miran stepped to a podium on November 19, 2025, to challenge a rule that has quietly shaped how banks manage their assets. Treasuries, the bedrock of global finance, are treated no differently from riskier holdings under current leverage requirements—a setup Miran argues discourages banks from stepping in when markets falter most. His call for exemption echoes a broader deregulatory wave under Vice Chair for Supervision Michelle Bowman, amid rising U.S. debt and lingering liquidity strains from events like April’s tariff shocks. As the Fed balances safety with market flow, this proposal arrives at a crossroads: With Treasury issuance surging toward $30 trillion, can easing rules prevent freezes without inviting excess risk? The answer could redefine how banks support the world’s largest bond market, ensuring it remains a reliable haven even in turbulent times.
What Is the Enhanced Supplementary Leverage Ratio, and How Did It Shape Banking Rules?
The enhanced supplementary leverage ratio, or eSLR, emerged from the ashes of the 2008 financial crisis as a safeguard against the hidden dangers of off-balance-sheet activities that amplified that meltdown. Introduced in 2014 under Basel III reforms, it requires the eight largest U.S. global systemically important banks—firms like JPMorgan Chase and Bank of America—to hold Tier 1 capital equal to at least 5 percent of their total leverage exposure, including a 2 percent buffer on top of the standard 3 percent supplementary leverage ratio. This exposure covers not just loans and securities but also derivatives and repo agreements, aiming to curb excessive borrowing by treating all assets equally, regardless of risk.
Unlike risk-based capital rules that demand more padding for junk bonds than government debt, the eSLR acts as a blunt backstop. Its history traces to pre-crisis laxity, where banks like Lehman Brothers hid leverage through complex structures, fueling the subprime collapse. Post-Dodd-Frank, regulators calibrated it to ensure these giants—handling 40 percent of U.S. deposits—stay solvent in shocks. By 2018, proposals emerged to tweak the buffer to half a bank’s GSIB surcharge, but the FDIC’s reluctance stalled progress. The COVID-19 era exposed flaws: As reserves swelled to $4 trillion and Treasury holdings doubled, the eSLR bound tighter than intended, pushing banks to shed low-risk assets amid March 2020’s dash for cash.
This binding effect probes deeper tensions. From March 2019 to late 2024, the eSLR constrained GSIBs more than risk-weighted measures, except during a temporary exemption for Treasuries and reserves that unlocked $100 billion in lending capacity. Critics like Governor Christopher Waller note it equates Treasuries to high-yield debt, nudging firms toward riskier pursuits for returns—ironically undermining stability. Parallel reforms, like the 2025 Basel Endgame adjustments slashing capital hikes from 19 percent, aim to realign it as a supplement, not a straitjacket. For everyday operations, this means banks allocate billions—estimated at $50 billion extra under current rules—to safe holdings that yield little, diverting funds from loans to small businesses. As issuance climbs with deficits projected at $3.4 trillion over the decade, the eSLR’s one-size-fits-all approach risks amplifying strains, setting the stage for Miran’s push to carve out space for the market’s safest cornerstone.
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Why Does Miran Want to Exempt Treasuries from the Leverage Ratio?
Stephen Miran, confirmed to the Fed board in September 2025 after Senate wrangling, delivered his remarks to the Bank Policy Institute, framing the exemption as a targeted fix for a mismatched system. Treasuries and central bank reserves, mandated as high-quality liquid assets under liquidity coverage ratios, face penalties in the eSLR that contradict their safe-haven role. Miran argued this setup “penalizes” holdings during stress, when banks—key intermediaries for 70 percent of Treasury trading—pull back to preserve capital, worsening liquidity droughts. An outright exclusion, he said, would “insulate” the market, echoing the 2020 waiver that stabilized flows amid pandemic chaos.
His rationale ties to recent strains. April 2025’s tariff announcements spiked volatility, with Treasury yields jumping 50 basis points and bid-ask spreads widening 20 percent—mirroring 2020 and 2023 episodes where leverage rules amplified sales. Banks, facing eSLR squeezes, offloaded $200 billion in holdings, per Fed data, as reserves hit $3.5 trillion and TGA balances fluctuated with debt-ceiling fights. Miran, drawing from his White House advisory roots, sees this as misaligned incentives: Why force capital against assets that absorb shocks? Exemption would free $30-50 billion in capacity for GSIBs, encouraging more market-making without hiking overall risk.
Broader context reveals policy evolution. The June 2025 eSLR proposal, Bowman’s first major move, ties buffers to GSIB surcharges—halving the fixed 2 percent for some—but stops short of full exemption, soliciting feedback instead. Miran backs this tiering yet urges bolder steps, noting it aligns with global peers like Europe’s CRR tweaks. For the $29 trillion Treasury market—benchmark for mortgages and corporate bonds—such changes could smooth auctions, where primary dealers absorbed 25 percent more issuance in 2025 amid fiscal expansion. Critics counter that exemptions risk moral hazard, but Miran counters: Reserves and Treasuries aren’t “binding constraints” in normal times; freeing them preserves the ratio’s backstop role. As his term winds down by January 2026, this stance—blending Trump’s deregulatory bent with pragmatic finance—invites scrutiny: Does it fortify resilience, or erode the post-crisis walls built to prevent repeats of 2008?
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How Do Treasury Market Strains Highlight the Need for Regulatory Tweaks?
The U.S. Treasury market, with $30 trillion outstanding as of September 2025, underpins everything from global reserves to everyday borrowing, yet repeated liquidity hiccups expose vulnerabilities tied to bank rules. In April 2025, Trump’s tariff rollout triggered a “dash for cash,” with on-the-run 10-year note spreads ballooning to 5 basis points from 1—levels unseen since March 2020—as hedge funds unwound $150 billion in basis trades, per New York Fed estimates. Banks, eSLR-bound, hesitated to intermediate, draining $300 billion in repo liquidity and pushing overnight rates to 5.5 percent.
This isn’t isolated. March 2023’s SVB fallout saw yields spike 40 basis points amid $500 billion in sales; COVID’s March 2020 freeze required Fed purchases of $1.6 trillion to restore order. Structural shifts amplify risks: Treasury supply swelled 20 percent yearly with deficits, while dealer balance sheets, capped by leverage, grew just 5 percent. Nonbanks like hedge funds now hold 30 percent of issuance, but their leveraged positions—fueled by repo—unwind fast in stress, overwhelming banks.
Miran’s exemption targets this crux: Penalizing Treasuries discourages holdings when needed most, as seen in July-September 2025 when TGA rebuilds drained $350 billion in reserves, firming repo rates daily. Post-exemption in 2020, intermediation rebounded 15 percent. Parallel fixes, like SEC’s December 2023 clearing mandate—phasing in by June 2026—net multilateral risks but add costs; exemptions could offset by unlocking capacity. Brookings analyses suggest tweaks could cut illiquidity 10-20 percent in volatility spikes, stabilizing benchmarks that price $10 trillion in mortgages annually.
Yet, trade-offs linger. Easing might spur speculation, but data shows binding eSLR already tilts banks riskward—GSIBs shifted $100 billion to loans over Treasuries since 2020. As QT pauses December 1, 2025, with balance sheet at $7 trillion, the query sharpens: Can exemptions bridge supply-demand gaps without new vulnerabilities, ensuring the market’s “risk-free” tag holds in an era of fiscal flux?
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How Does Bowman’s Deregulation Drive Fit Into This Proposal?
Michelle Bowman’s ascent as Vice Chair for Supervision in summer 2025 ignited a deregulatory sprint, slashing her division’s staff by 30 percent—down to 350 from 500—via attrition and incentives, aligning with Trump’s government-trim ethos. Her June eSLR proposal, the first salvo, recalibrates buffers to GSIB risk scores, easing $20-30 billion in constraints while preserving backstops—a move Miran endorses but seeks to amplify with exemptions.
This fits a pattern: Bowman’s overhaul targets “overreach,” curtailing examiner scrutiny and tying bonuses less rigidly, per internal memos. Amid Basel Endgame dilutions—capping hikes at 9 percent—she eyes stress test tweaks and “debanking” curbs, freeing banks for crypto and fintech. Critics like Senator Elizabeth Warren warn of 2008 echoes, demanding details by November 20 on capacity post-cuts. Bowman counters: Sharper focus, not less—streamlining for efficiency.
Miran’s Treasury push aligns seamlessly, potentially shrinking the Fed’s $7.2 trillion balance sheet further by easing reserve demands. As QT halts, her reforms could drop optimal reserves below current levels relative to GDP, aiding normalization. Broader stakes: With Trump’s influence peaking—three board seats by year-end—this duo probes stability’s edge. Does it empower markets, or court complacency in a debt-laden world?
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From 2014’s safeguards to 2025’s recalibrations, the eSLR saga reflects finance’s tightrope: Guarding against crises while fueling the markets they serve. Miran’s exemption, if adopted, could steady Treasuries’ flow, echoing 2020’s relief without full retreat. Yet, as Bowman’s cuts reshape oversight, the balance tilts toward flexibility— a bet on banks’ discipline amid swelling debts. In this evolving framework, resilience may hinge not on rigid rules, but adaptive ones, ensuring the Treasury’s quiet strength endures for generations ahead.
