Fed Debt Monetisation Would Be the Nuclear Solution to SLR.

#federalreserve #SLR #qe #treasury #debt #yields #YCC #stimulus #hyperinflation #bonds #credit #economics #money

Today we will look further into the question of the Supplementary Leverage Ratio for the big Wall Street banks and how it affects the Treasury market, interest rates and the credit market in general.

This SLR problem has arisen as a result of the Fed's QE programme and the increase in the Fed's balance sheet which has led to an increase in commercial banks balance sheets as well.

Aside from extending the exemption to SLR the Fed and the U.S. Congress could decide that the Fed could buy debt directly from the Treasury but that would be the last resort but something we should keep in mind.

(JP Morgan notes to their clients last year, 2020) Federal Reserve announcement provides temporary relief to banks on leverage and capital adequacy: https://am.jpmorgan.com/sg/en/asset-management/liq/insights/liquidity-insights/updates/a-federal-reserve-announcement-provides-temporary-relief-to-banks-on-leverage-and-capital-adequacy/

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