WASHINGTON (Reuters) – The U.S. Federal Reserve will let a temporary bank leverage rule exemption expire on March 31, but it will review the rule due to concerns it is no longer functioning as intended as a result of the central bank’s emergency pandemic monetary policy measures.
To ease stress in the Treasury market sparked by the COVID-19 pandemic and to encourage bank lending as American households and businesses were hurt by lockdowns, the Fed last April temporarily excluded U.S. Treasuries and central bank deposits from the “supplementary leverage ratio.”
Friday’s decision means banks will have to resume holding an extra layer of loss-absorbing capital against those assets.
On Friday, Fed officials said they were confident that allowing the exemption to expire would not impair Treasury market liquidity or cause market disruption because the Treasury market had stabilized and big banks have high levels of capital.
However, because of recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Fed said it may need to review the calibration of the ratio “to prevent strains from developing that could both constrain economic growth and undermine financial stability.”
(Reporting by Michelle Price)
