SLR Not Seen to Reduce Bank Lending
In minutes of the Treasury Borrowing Advisory Committee released today, a Treasury debt manager concluded that the recent change to the SLR denominator (see FSM LEVERAGE23) has “facilitated” larger bank holdings of USGs, but not caused them. This is contrary to assertions that temporary SLR relief has decreased bank lending and thus should not be extended after the scheduled March 31, 2021 expiration. The debt manager argued that increased bank Treasury holdings are due to deposit inflows, weak loan demand, risk aversion, and the value of longer-dated USG holding to offsetting NIM compression.