MNI BRIEF: Banks Eye Better Treasury Transactions- Fed Survey

Roughly half of U.S. dealers have reevaluated the amount of capital and available funds committed to Treasury intermediation on a daily basis due to the stress events brought on by Covid in March, according to a Federal Reserve survey released Tuesday.

Three-fifths of dealers indicated that during March their most constrained service was the provision of immediacy of execution in buying and selling securities, the Fed said in a special section of its quarterly Senior Credit Officer Opinion Survey conducted November 10-26. On net, approximately one-third of dealers indicated that their capacity to intermediate Treasury securities increased since January, primarily due to Fed asset purchases but also a small fraction of dealers cited regulatory changes.

One-third of all dealers reported that they expect to increase the amount of capital or funds committed to Treasury intermediation. Former Fed officials have told MNI the central bank may extend regulatory relief for banks and push for wider clearing of Treasuries to help dealers provide liquidity during market volatility.