Bowman says bank leverage relief is working: dealers added about $100 billion of Treasuries on $5 trillion of new room

Federal Reserve Vice Chair for Supervision Michelle Bowman said Thursday that the loosening of a key capital rule for the largest banks has improved how the Treasury market functions, giving dealers room to hold more government bonds and absorb selling. Her speech to the Atlantic Council was the Fed's first public assessment of the change, and it landed in the middle of a global bond sell-off.

What changed

The rule is the enhanced supplementary leverage ratio, or eSLR, which requires the eight US global systemically important banks to hold capital against all assets regardless of risk, Treasuries included. Bowman said that in November 2025 the Fed, FDIC and OCC replaced its flat 2% buffer with one equal to half of each bank's method-1 surcharge, capped at 1% for the deposit-taking subsidiaries. The rule took effect April 1, 2026, and seven of the eight banks adopted it early in the first quarter.

The figures she gave

• The parent companies of six dealers gained nearly $5 trillion of additional eSLR headroom in the first quarter, according to estimates she cited.
• Dealers' total Treasury positions rose from roughly $600 billion to over $700 billion by the end of April, based on supervisory data.
• One dealer told the Fed that leveraged capacity across the big banks rose from $1.8 trillion in the fourth quarter of 2025 to $6.4 trillion, with leveraged exposure up about $900 billion.

She also said dealers have been buying Treasuries and hedging with futures, likely taking over some of the cash-futures basis trade previously held by hedge funds, and pointed to narrower bid-ask spreads and calmer auction days.

The number behind the number

Put the first two figures side by side. On her own numbers, dealers added roughly $100 billion of Treasuries against an estimated $5 trillion of new balance-sheet room, about 2 cents of bonds for every dollar of freed capacity. The two numbers do not cover exactly the same firms, so the ratio is rough, but the gap is consistent with a line in the speech that is easy to miss: "only a few" of the banks used the extra capacity for Treasury activities at all. Most of the room went elsewhere.

Better functioning is not lower yields

The easy reading of Bowman's speech is that the Fed has made Treasuries easier to own, so borrowing costs should ease. The yield data say otherwise. According to Treasury's daily yield curve, the 10-year note yielded 4.30% on March 31, the day before the rule took effect. On Thursday it closed at 5.24%, up 94 basis points. The 30-year went from 4.88% to 5.61%, and the 2-year from 3.79% to 4.78%.

Those two things are not in conflict. Bowman's claim is about liquidity, meaning bonds can change hands in size without disorderly price gaps, which matters most in a sell-off like this one. The level of yields is set by inflation, the Fed's own rate path and government borrowing, none of which a capital rule touches. A dealer with more room can make a falling market orderly. It cannot stop it falling.

Who feels it

For borrowers, the practical takeaway is that the rate relief some expected from bank deregulation has not arrived. Anyone pricing a fixed-rate loan off the 10-year, from a homebuyer to a business owner refinancing equipment or real estate, is paying close to a full percentage point more than in March. Mortgage rates have followed, as our report on Freddie Mac's 7.28% average showed. For the wider bond backdrop, see the global bond rout and our 10-year chart.

Sources: Federal Reserve Board (speech by Vice Chair for Supervision Bowman, Oct. 1, 2026); U.S. Department of the Treasury daily par yield curve rates. The Treasuries-per-dollar ratio and yield changes are our calculations. Bowman noted her views are her own. This is market information, not investment advice.