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Wall Street Banks See Green Light from Fed on Reserves - ABI

Wall Street banks believe they are getting a green light from supervisors to hold more Treasury debt and less cash after last month’s volatility in overnight lending markets, Reuters reported. That change could help boost liquidity in the overnight lending markets, because Treasury bonds are a common type of collateral pledged by companies and investors in exchange for cash. Banks have complained for years that the U.S. Federal Reserve can be painfully prudent with its view that Treasury bonds are not the same as ordinary dollars when used as a liquidity buffer. In recent weeks, they have intensified efforts to get Fed officials and examiners to soften their stance, and initial signs suggest the industry may finally be getting a warmer reception. In private conversations with senior bankers, supervisors have attempted to make banks more comfortable with using excess reserves to lend in repo markets rather than hold onto more cash. Banks hold regular meetings with Fed supervisors, who provide broad guidance on how to interpret regulations but do not offer formal instructions. ABI

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