Vivien Lou Chen

Tue, May 27, 2025, 1:02 PM4 min read

U.S. Treasury Secretary Scott Bessent has an idea in mind that he says should help to bring down long-term Treasury yields, which act as a benchmark for interest rates. But one big question remains: Will it work?

The plan is to soon lower the supplementary leverage ratio for banks, which should theoretically allow them to hold more U.S. government debt, lend more freely or both. The SLR, established in 2014, is aimed at ensuring that banks have sufficient capital to absorb losses, particularly during periods of stress, and requires them to hold a specific amount of high-quality capital relative to their total leverage exposure.

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A potential revamp of the SLR — which has been talked about for months — has already gained support from the banking sector. It came to the fore during an interview with Bloomberg Television last Friday, when Bessent said: “I think we are very close to moving the supplementary leverage ratio, SLR. That is moving along very quickly between the three banking regulators,” which are the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. “So I would think we could see something on that over the summer.”

Uncertainties over the Trump administration’s tariff policies have raised questions about investors’ willingness to keep buying U.S. government debt and where future marginal buyers will come from. This, in turn, has led to a recent bond-market selloff, which drove the 30-year Treasury yield BX:TMUBMUSD30Y to almost 5.09% last Wednesday — the highest level since Oct. 25, 2023, according to 3 p.m. Eastern time figures. The narrow passage of President Donald Trump’s tax and spending megabill in the House of Representatives last Thursday, which moved the package to the Senate, has only added to worries about the U.S. fiscal outlook.

Lowering the SLR could play into Trump’s overall agenda by potentially freeing up banks to do more lending, persuading them to add more Treasurys to their balance sheets or both, as well as by reducing long-term borrowing costs for businesses and households and stimulating economic growth. In February, the administration pledged to focus on containing long-term Treasury yields, which gave rise to speculation among traders that the SLR rules would be reviewed.