That's a little scary in this environment. Changing the Supplementary Leverage Ratio to make treasuries more enticing to banks could create a situation where the banks hold even more of their deposits in treasuries. If treasury yields then move up due to the aforementioned tariffs and doubts about the US honoring its debts, it would make those bonds held by the banks nearly worthless on the secondary market. At that point, all it takes is people pulling money out of savings en masse (which happens in an economic downturn) to create a collapse of the banking system. Banks would have to liquidate bonds at a massive discount on the secondary to honor withdrawals, which would further push up yields, at which point there would likely be contagion and panic, bank runs, and implosion.
This exact dynamic is what caused the 2023 banking crisis and the collapse of SVB.
https://en.wikipedia.org/wiki/2023_United_States_banking_cri...
This administration keeps making the absolute worst possible choices, so none of this surprises me.
First, my apologies for answering your "because Trump" with "because Biden". It was a knee-jerk reaction to politicization of an argument that IMO has nothing to do with politics. If I had to pick "because something" I would say "because Iraq war / G.W. Bush" which started this fiscal debt spiral.
That said, I do not immediately agree with either of your points here. On changing the SLR, to the best of my knowledge it gives the bank an option, not places a requirement on them.
On the SVB collapse: that was a bank run, plain and simple. That particular one was caused by jumpy clients (startups) that reacted to the mark-to-market correction due to the raised rates. The bank's chief risk officer probably screwed up pretty badly, but bank runs can happen to ANY bank, large or small. If enough Citibank, BoA or Chase clients decided to move money out those large banks would be in the same boat (i.e., unable to fulfil those request, or insolvent).
The reason most banks are mostly safe from bank runs most of the time is that small clients believe they will be bailed out by the FDIC (which does not have enough money to bail everyone) and large companies believe they will be bailed out directly by the gov't, printing money as needed to save systemically important banks. But smaller banks do get insolvent regularly, with over 500 since my "because Bush" point of 2001. Nothing special.
The only way out I think is via financial repression, holding rates below inflation, partially inflating gov't debts and partially wiping out savers (and pensions that do not adjust for inflation and a ton of other things) and maybe partially growing the economy out of it. This is a long process, IMO likely to play out over the next 10 years or more and will be painful for those caught in front of this wreck. But it has nothing to do with <insert your evil president or party>" now. My 2c.
> That said, I do not immediately agree with either of your points here. On changing the SLR, to the best of my knowledge it gives the bank an option, not places a requirement on them.
It's hardly just an option, when the other alternative is for it to sit idle while we have 2% inflation. It's scary because it betrays the fact that they're already needing to relax a set of totally reasonable regulations put in place after the GFC to ensure that there is adequate demand in long-dated treasuries.
Did you use an LLM to write this?
No, not at all. It's pretty crazy that people are paranoid everything is from LLMs. The truth is I went to Catholic school where they drilled grammar and sentence structure and it stuck with me. Now I get accused of being an AI. Cute.
Also, FWIW, I honestly don't think my reply seemed that LLM-like. There's no em-dashes. There's no bullet points. Despite my best intentions, there are probably also grammatical mistakes. Perhaps I should stop using proper capitalization like you to remove all doubt!
It felt like an LLM only because it summarized so much subtext. Sorry!
I also went to Catholic school.