U.S. banks return to Treasuries

Wall Street’s biggest Treasury dealers are carrying the most U.S. government debt since before the 2008 crisis, with average net inventories around $550 billion this year. (en.sedaily.com) (ft.com) That compares with about $400 billion in 2025, according to a Financial Times analysis of New York Fed primary-dealer data cited by Seoul Economic Daily. The increase puts dealers at roughly 2% of the $31 trillion Treasury market, the highest share since 2007. (en.sedaily.com) (newyorkfed.org) Primary dealers are the firms that must show up at Treasury auctions, buy new debt and help distribute it across the market. The Treasury Department says they are also expected to bid competitively and make markets for the New York Fed. (home.treasury.gov) The policy shift behind the buildup started on June 25, 2025, when the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency proposed rewriting the enhanced supplementary leverage ratio. Chair Jerome Powell said the old setup had become more binding as reserves and Treasury holdings climbed. (federalreserve.gov) The rule was finalized on December 1, 2025, with regulators saying the change should keep the leverage ratio as a backstop instead of a regular constraint on low-risk, low-return activities. Banks covered by the rule were allowed to adopt it as early as January 1, 2026. (federalregister.gov) In plain terms, the old leverage rule made a bank hold capital against a Treasury bond much like it would against riskier assets, which made warehousing government debt expensive. BNY said leverage ratios can force the same capital treatment for a highly liquid Treasury as for an equivalent less-liquid private loan. (bny.com) That matters in a market that now exceeds $29 trillion and is still growing, while new clearing rules are set to pull more Treasury trades into central clearing. BNY estimated those Securities and Exchange Commission changes could require about $4 trillion in daily transactions to be centrally cleared. (bny.com) Federal Reserve Chair Powell said banks play an “essential intermediation role” in Treasuries, and the agencies said the final rule was meant to reduce disincentives to participate in those low-return businesses. Reuters reported in November that regulators saw the change as a way to let banks hold more Treasuries and support funding markets. (federalreserve.gov) (ca.finance.yahoo.com) The immediate result is that more of the market’s inventory is back on bank balance sheets instead of being pushed outward by capital costs. If that continues, the firms that fund and absorb Treasury trades could look a little more like they did before years of post-crisis balance-sheet pressure. (en.sedaily.com) (federalregister.gov)