Why The SLR Is All That Matters For Markets Right Now

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by Tyler Durden
Thursday, Mar 04, 2021 - 05:45 AM

One of the biggest buzzwords in finance right now is the three letter acronym SLR, which stands not for a discontinued and particularly expensive Mercedes model, but for Supplemental Liquidity Ratio - a limit on how leveraged US banks can get - and whose fate could mean the difference between a stabilization in the bond market a violent, marketwide crash.

Here's what's going on.

Back on April 1, 2020, just as the market was crashing and one week after the Fed unleashed its bazooka to avoid a total systemic collapse, the Fed announces temporary change to its supplementary leverage ratio (SLR) rule "to ease strains in the Treasury market" and "increase banking organizations ability to provide credit to households and businesses." Specifically, the Fed change would exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the rule for holding companies. The change would be in effect until March 31, 2021.