The next financial crisis could already be -2-

Recommendations included implementing universal clearing of all Treasury transactions and repos, establishing regulatory carve-outs from regulatory leverage ratios to allow dealers to store more bonds on their books and the establishment of permanent repo operations at the Federal Reserve.

Although most of the report’s recommendations have not yet been implemented, the Fed implemented permanent repo facilities for domestic and foreign brokers in July 2021. And the Securities and Exchange Commission is taking steps to make mandatory more centralized clearing.

However, in an update on the situation released earlier this year, the task force said the Fed facilities had not gone far enough.

On Wednesday, the Securities and Exchange Commission is preparing to announce that it will propose rules to help reform the way Treasuries are traded and cleared, including ensuring that more Treasury trades are cleared centrally. , as the Group of 30 recommended, as reported by MarketWatch.

See: SEC poised to advance reforms to avert next crisis in $24 trillion market for U.S. government debt

As noted by the Group of 30, SEC Chairman Gary Gensler expressed support for the expansion of centralized Treasury bill clearing, which would help improve liquidity in times of crisis by helping to ensure that all transactions settle on time without any hitches.

Still, if regulators seem complacent about these risks, it’s likely because they expect that if something goes wrong, the Fed can simply step in to the rescue, as it has done in the past. .

But Bank of America’s Axel thinks that assumption is wrong.

“It is not structurally sound that US public debt becomes increasingly dependent on Fed QE. The Fed is a lender of last resort to the banking system, not the federal government,” Axel wrote.

–Vivien Lou Chen contributed reporting

-Joseph Adinolfi


(END) Dow Jones Newswire

09-17-22 1034ET

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