Fed Chair Powell on SLR Reform, Treasury Market Impact, and CRA Rule

Supplementary Leverage Ratio (SLR) Reform

• 💡 Chairman Powell acknowledges that the supplementary leverage ratio (SLR), when binding, discourages banks from engaging in low-margin, safe activities like Treasury market intermediation.
• 🎯 The Federal Reserve is seeking public comment on a proposal for SLR reform that does not exclude Treasuries from the calculation, though it is also posing a question about exclusion.
• ⚠️ Powell supports leverage ratio reform, noting that the temporary exclusion of Treasuries during COVID-19 was an emergency measure and not a permanent solution.

Impact on Treasury Market

• 📈 While Powell agrees that SLR reform could boost banks' ability to intermediate in the Treasury market, he does not provide a specific numerical estimate of the impact.
• 🔑 The Treasury Secretary had previously suggested that excluding Treasuries could potentially lower Treasury yields by 30 to 70 basis points.

Community Reinvestment Act (CRA) Rule

• 🗓️ The Federal Reserve, FDIC, and OCC intend to issue a notice of proposed rulemaking to repeal the 2023 CRA and replace it with the legacy framework.
• ⏳ Vice Chair Bowman is managing the sequencing of these initiatives, and the CRA project is confirmed to be moving forward.

Supervision of Novel Activities

• 🚀 Changes to the supervision of novel activities program are anticipated to encourage innovation.
• 🧠 Vice Chair Bowman's expertise in supervision is highlighted as a key factor in moving the program in a healthy direction while preserving safety and soundness.