Seminarios Académicos

event Publicación: 09/06/2022

Leverage Regulations and Treasury Market Participation: Evidence from Credit Line Drawdowns

Autor: Sebastian Infante

Co autores: Giovanni Favara, Marcelo Rezende

Abstract: We examine the effects of the supplementary leverage ratio (SLR) on large banks’ participation in U.S. Treasury markets. Exploiting exogenous shocks to credit line drawdowns and data on bank’s holdings of Treasury securities, we show that an increase in banks’ balance sheets size reduces their incentives to participate in Treasury market. This effect is weaker for banks with higher SLR and muted when the Fed excludes Treasury securities from the computation of the SLR. Accounting for risk-based capital ratios does not change these results. These findings support the hypothesis that banks’ ability to participate in markets for safe assets may be curtailed by leverage regulations.

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