🔔 The Bond Market Is Broken. Let's Fix It

 Quick reminder 🙌

💸 Transaction fees can be 10x lower;

🌍 No cross-border fees;

⚡️ Faster payments & settlements;

🛡 No chargebacks (fraud);

💯 No payment limits (ex. cards have limits);

🔐 Works with any wallet, your keys your money (Satoshi’s vision);

🔜 Merchant Yield. https://t.co/XcemXjNcRJ— Utrust (@UTRUST) October 6, 2022 

 Movin' on up. Bond market volatility is surging... pic.twitter.com/7UHdiQzEG6— Markets & Mayhem (@Mayhem4Markets) October 13, 2022 

"Generals are always prepared to fight the last war"

The supplementary leverage ratio is the US implementation of the Basel III Tier 1 leverage ratio, with which banks calculate the amount of common equity capital they must hold relative to their total leverage exposure.

Large US banks must hold 3%. Top-tier bank holding companies must also hold an extra 2% buffer, for a total of 5%.

The SLR, which does not distinguish between assets based on risk, is conceived as a backstop to risk-weighted capital requirements.

 Deposits and cash assets at banks post expiry of SLR exemption on 31st March '21.

👀 https://t.co/Ji9P0unzqg pic.twitter.com/Vniup9PuMx— IZ (@siddiqui71) September 20, 2022 

Banks including JPMorgan Chase and Citigroup have held conversations with some large corporate clients about putting cash into money market funds rather than in deposits, according to people briefed on the talks.

An influx of deposits with relatively weak loan demand depresses bank profits. It also increases the size of their balance sheet, requiring more capital and reducing banks’ returns on equity.

“The continued upward trajectory of regulatory capital requirements on America’s already fortified largest banks, particularly when not reflective of actual risk, is itself becoming a significant economic risk,”

“This is bad for America, as it handicaps regulated banks at precisely the wrong time, causing them to be capital constrained and reduce growth in areas like lending, as the country enters difficult economic conditions.”

Since the onset of the pandemic, the U.S. government has increased the level of outstanding Treasury debt by roughly one-third, or $7 trillion.

This rapid and significant increase in the supply of Treasury debt demands a commensurately more robust and well-functioning secondary market for U.S. Treasury securities to ensure that the U.S. government can manage the increased cost of financing the pandemic response.

There are obvious risks from under-regulation, and it is those risks that were addressed in the wake of the financial crisis 14 years ago.

But we sometimes overlook the significant costs to our economy, and risks to safety and soundness, from over-regulation, where rules are not designed and calibrated to address the actual risks.

In a time of rising interest rates that could constrain credit, it is especially important to ensure that regulation and supervision not add costs and burdens for banks with little or no benefits to safety and soundness.

Thinking about capital holistically also provides an opportunity to consider adjustments to the components of the capital requirements for the largest institutions, including the supplementary leverage ratio

Beginning in September, the Fed is supposed to let $95 billion a month Runoff [QT]. At this point, there’s no official end to the Runoff, but I expect it will continue until something breaks.

Think about $95 billion of Balance Sheet Runoff each month. That’s a massive amount of Treasury and agency securities entering the market. Now, when you consider net new Treasury issuance, there’s even more Treasury supply on the way.

Though I’ve seen a range of estimates, let’s assume the government budget deficit is $1 trillion. That means there’s another $83 billion a month in new securities coming into the market. Combine Balance Sheet Runoff with net new Treasury issuance and we are looking at about $178 billion of securities coming into the market each month. Every month for the foreseeable future; no end in sight.

Think of it this way, there will be $1 trillion more government securities in the market by March 2023. Where’s the cash coming from to pay for these securities?