ABA Letter Highlights Effects of Regulation on Treasury Market

In a comment letter to the Department of Treasury today, ABA and the ABA Securities Association applauded the department’s efforts to review the structure and function of the U.S. Treasury market and encouraged Treasury to fully examine the effects of the current regulatory environment on both market activity and bank customers.

The letter highlighted the important role of treasury securities for liquidity risk mitigation, loan pricing and benchmarking and use as collateral for various financial transactions. ABA pointed out, however, that Basel III’s capital and liquidity requirements have had an effect on fixed-income markets, and have forced banks to shrink their balance sheets, change their funding mixes and exit certain lines of business.

The association encouraged the department to review the current regulatory framework to identify overlapping, contradictory or otherwise harmful regulations and publish its findings in a manner that encourages public discussion while protecting proprietary information.