Latest news with #SLR
Zawya
2 days ago
- Business
- Zawya
Trump's push for regulatory reform highlights ‘Treasury put': Jen
(The opinions expressed here are those of the author, the CEO and co-CIO of Eurizon SLJ asset management.) LONDON - There has been much discussion of the so-called "Trump put" for equities, but perhaps more attention should be paid to the administration's effective "Treasury Put". Given the high U.S. public debt burden, the government must keep interest rates under control, and that appears to be the primary motivation for the Trump administration's recent push to relax a key bank regulatory requirement. U.S. Treasury Secretary Scott Bessent on May 27 discussed progress made to relax the Supplementary Leverage Ratio (SLR) requirement for U.S. banks. The SLR was introduced in early 2018 as part of the Basel III bank regulations to help ensure large banks held sufficient capital. The SLR is a second layer on top of the normal capital requirement, which is why it is considered "supplementary". What is special about the SLR is that banks' holdings of Treasuries incur a capital charge, in contrast to the normal capital requirement, which assigns government bonds a zero-weighting for risk purposes. Based on the current SLR, large banks in the U.S. are charged a 5% capital fee, while smaller banks are charged 3%. NECESSARY REFORM It is widely accepted that the SLR needs to be relaxed because it appears to be hurting large banks' ability and capacity to provide market liquidity, a particular concern given how much Treasury issuance has exploded since the pandemic. Outstanding U.S. Treasuries, including those held by the Federal Reserve, rose from 100% of GDP prior to 2020 to around 120% now, exacerbating the disconnect between supply and demand. Fed Chair Jay Powell has weighed in, commenting in February 2025, "The amount of Treasuries has grown much faster than the intermediation capacity has grown, and one obvious thing to do is to lower the bindingness of (the SLR)." The Trump administration is supporting efforts to do just that, with an agreement to relax the SLR expected this summer. COST CONTROL Even though SLR reform is intended to improve liquidity and thereby support bank lending and economic growth, one of the Trump administration's other key motivations is clearly keeping a lid on government borrowing costs. Treasury Secretary Bessent indicated as much in his May 27 interview, stating that relaxing the SLR could "bring yields down by tens of basis points." With the caveat that it is very difficult to estimate the yield impact of SLR reform econometrically, there's reason to believe that Secretary Bessent could be right. Reducing the SLR should, in theory, lower yields by boosting bank demand for Treasuries. Market estimates suggest that a one percentage point SLR reduction could lower the 10-year Treasury yield by 10-50 basis points, depending on the circumstances. Based on this estimate, dropping the SLR charge by two percentage points – a likely reform – could double that. Based on that assumption, we would expect to see a 0.50 percentage point reduction in the 10-year yield, which is consistent with Secretary Bessent's statement of "a few tenths of a percent". 'BOND PUT' The Trump administration is keeping a close eye on the bond market. Secretary Bessent has long been clear that getting the U.S. fiscal deficit under control is one of his top priorities, but this will be difficult to achieve if interest rates are too high relative to economic growth. The Secretary's repeated references to a relatively obscure issue like SLR relaxation and its potential impact on Treasury yields only highlights this focus. Importantly, this is not just a matter of watching out for bond market ructions, which any administration would do. It's about taking action to try to keep yields down. In other words, there is more likely to be a Trump "bond put" rather than a Trump "equity put". Or to put it another way, the strike price on the former is likely to be a lot higher. LOOKING FORWARD Given the Trump administration's focus on the bond market and recent trends in U.S. inflation and economic activity, it is reasonable to assume that the 10-year U.S. Treasury yield could trade below 4.00% in the fourth quarter, down from its current level around 4.30%. While yields remain elevated, likely because of perceived fiscal risks, a prospective relaxation of the SLR could have the opposite effect by boosting demand for U.S. government bonds. To be sure, other economic, geopolitical or market factors could complicate this scenario. But if we do see lower bond yields, this should support risk assets and be negative for the dollar, and, perhaps most importantly, it may buy more time for the U.S. to deal with its fiscal challenges. (The views expressed here are those of Stephen Jen, the CEO and co-CIO of Eurizon SLJ asset management). Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X. (Writing by Stephen Jen; Editing by Anna Szymanski and Sam Holmes.)
CNBC
2 days ago
- Business
- CNBC
How to play the outperforming financials sector as the second half of 2025 kicks off
(This is a wrap-up of the key money moving discussions on CNBC's "Worldwide Exchange" exclusive for PRO subscribers. Worldwide Exchange airs at 5 a.m. ET each day.) Investors heading into Monday's session were looking at financials as the sector outperforms. JPMorgan also breaks down its year-end outlook for stocks. David Zervos' outlook on financials David Zervos of Jefferies expects financials to be one of the best performing sectors in the second half of 2025. "I'm very optimistic on deal flow and a deregulatory story that starts to hit the energy sector and financial sector," said Zervos. " I think there is a story here with the SLR (Supplementary Leverage Ratio)." He added: "The administration is very keep on wrestling some regulator purview back into the administration … they want to see deals, they want activity and I think they are going to get it." SLR was established in 2014 as part of the Basel III reforms to monitor banks Tier 1 capital. Last week, big banks passed their most recent stress test, but those were reportedly less vigorous than previous years. Passing the stress test lest major banks to issue dividends to shareholders and announce stock buybacks. The dividend plans are expected to be announced this week. The financial sector is more than 26% higher year to date. JPMorgan 2025 year-end outlook; how to play defense sector Joyce Chang of JPMorgan has a S & P 500 forecast of 6,000 implying a 4% pullback from current levels. "I think we are in a range here, you have slower growth coming and we think higher inflation," said Chang. "You also have very steady retail demand and buybacks, we have been looking at $7 billion-$8 billion daily into equity markets. The technicals could squeeze this higher but we are on a stagflationary tilt here. I would careful calling for much higher market." She added on the headwind from tariffs and trade deals: "We are still looking an effective tariff rate that is 14% that is a $400 billion tax." On a sector level, Chang is bullish on defense and aerospace and said she sees more upside in the European players in the space. "What they are doing at NATO is historic (increasing defense spending), even though it is going to play out over a period of time." Since the June 13 Israel strike on Iran, The EUAD Select STOXX Europe Aerospace & Defense ETF and the ITA iShares US Aerospace & Defense ETF are trading very closely. Baidu releases 'Ernie' bot Chinese tech giant Baidu is scheduled to release it's "Ernie" open source large language model on Monday, seen by many as the biggest AI development out of China since the "Deep Seek" release in January. Dan Ives from Wedbush has high expectations, "We believe Baidu has built an impressive 'Ernie' that will send some potential shockwaves across the AI market and it speaks to China becoming more and more successful on the AI front. I don't expect a 'Deep Seek' moment but the early reads are positive." Kevin Carter of EMQQ Global said investors should also pay attention to Baidu's developments in the autonomous driving space with its "Apollo Go" robotaxi service. " AI and Ernie GPT are important to Baidu, but real-world physical AI is happening right now with robotaxis scaling at an incredible rate," said Carter. "Many analysts have reiterated bullish views on the autonomous mobility market where Waymo is the clear US leader. Baidu's 'Apollo Go' is neck and neck with Waymo in the self-driving car market and has given more rides so far than Waymo so far. Apollo Go also has significantly more room to grow as China has 145 cities with 1 million people versus only nine in the U.S ." U.S.-listed Baidu shares are 4% higher year to date.
Time of India
4 days ago
- Time of India
JJMP ammo seized
Gumla: Security forces seized ammunition and mobile phones, belonging to the operatives of the outlawed Jharkhand Jan Mukti Parishad (JJMP), after a gunfight in Harkatta forest under Pesrar police station limits in Lohardaga on Friday. Lohardaga SP Shafique Anwar Rizvi on Saturday the seized items included 51 live cartridges, a SLR magazine and its pouch, Naxal literature, a walkie-talkie and eight mobile phones. "A raid was carried out by Seema Sashastra Bal, special assault team and Lohardaga district police based on intelligence inputs about the movement of JJMP operatives in the area. The operatives fled after a brief gunfight," he added.
Yahoo
7 days ago
- Business
- Yahoo
Powell: Fed's interest rate control toolkit depends on bank reserves
-- Federal Reserve Chairman Jerome Powell stated Wednesday that the central bank's ability to pay interest on bank reserves is a crucial component of its interest rate control toolkit and would be challenging to discontinue. During testimony before a Senate committee, Powell explained that returning to a scarce reserves system would be difficult. "If you were to want to go back to a scarce reserves, it would be a long and bumpy and volatile road," Powell said. "I wouldn't recommend that we undertake that road" and if it were done it "would not save any money." The Fed Chair also addressed several other key economic topics during his appearance. When asked about the U.S. dollar, Powell stated that the dollar "remains the world's reserve currency" but noted he doesn't "have a view on whether the dollar is overvalued." Powell indicated that the Fed plans to release something for comment regarding the Supplementary Leverage Ratio (SLR) on Wednesday. He agreed that adjusting the SLR would free up capital for banks. Additionally, he expressed confidence that the Fed would move forward on Basel 3 implementation "in the near future." Regarding the bond market, Powell stated it is "fine now, functioning well." He also emphasized the importance of continued investment in economic data collection. On monetary policy considerations, Powell clarified that the Fed doesn't factor federal debt into its monetary policy decisions. While acknowledging that fiscal policy can contribute to inflation, he declined to comment further on this relationship. Powell also addressed media reports about building amenities at the Fed, stating that such reports "are not accurate," and emphasized that the Fed takes "seriously our stewardship of public money." When asked about tariffs, Powell noted it is "very hard to predict how tariffs will show up in inflation." He added that changes to economic forecasts partly reflect the effects of trade policy. Related articles Powell: Fed's interest rate control toolkit depends on bank reserves U.S. said to restrict ethane exports to China Shell says no talks are taking place to acquire BP following mega-deal rumors Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Zawya
25-06-2025
- Business
- Zawya
Fed kicks off effort to ease bank leverage rules
The Federal Reserve meets on Wednesday to advance a proposal that would ease leverage rules for banks, which would grant the industry a long-sought win they say will help big firms facilitate Treasury market trading. The central bank's Washington board will consider a plan to revamp the so-called supplementary leverage ratio (SLR), which directs banks to hold capital against assets regardless of their risk level. Originally designed as a backstop to ensure banks hold some capital on even relatively risk-free assets like U.S. Treasury debt, the industry complains it has become a constraint that actually impedes their ability to facilitate trading in U.S. Treasury markets during times of stress. The Fed had previously flagged that the SLR may need some tweaks after it exempted some requirements amid market strains during the COVID-19 pandemic, and now Fed officials plan to advance a more lasting solution. "It would be better if we had a leverage ratio that was a backstop rather than a binding thing, and that's what this proposal is going to do," said Fed Chairman Jerome Powell at a congressional hearing Tuesday. Powell told lawmakers the Fed is expected to advance a proposal that would tweak the formula calculating the "enhanced" SLR (eSLR), which requires the nation's largest banks to hold an extra layer of capital. Specifically, the Fed is expected to mirror an effort regulators pitched in 2018 that failed to advance, which would tie leverage requirements to the overall risk each bank is deemed to pose on the financial system. However, he added the Fed would seek feedback on alternative methods of relief, such as broadly exempting Treasury securities from the requirement altogether. A Fed spokesperson declined to comment ahead of the board meeting. "We believe regulators want to provide banks with more space before riskless assets could make the eSLR a binding constraint," Jaret Seiberg, an analyst with TD Cowen, wrote in a note. The leverage changes are the first of what is expected to be a broad deregulatory agenda from the Fed's new top regulatory official, Vice Chair for Supervision Michelle Bowman. President Donald Trump, who nominated Bowman for the post, has made trimming regulations a top priority in a bid to boost economic growth. On Monday, she said the leverage rewrite is a first step in overhauling "distorted" capital requirements on banks, which were drastically ratcheted up after the 2008 financial crisis. Other future changes could include weakening an additional surcharge imposed on large global banks and tweaking thresholds under which banks face increasingly strict rules as they grow in size. However, the new plan has its critics, who argue stepping back rules intended to keep banks stable injects unnecessary risk into the system at the behest of the industry. Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee, said in a letter to regulators on Tuesday she had "grave concerns" about the plan. "If the banking agencies gut this requirement, the big banks will load up on more debt, pay out more money to shareholders and executives, and put the entire economy at risk of another financial crash," she wrote. "There is no valid rationale for your agencies to impose these risks on the American public." (Reporting by Pete Schroeder; Editing by Sam Holmes)
