House task force presses regulators on treasury-market resilience, central clearing and leverage rules

The House task force on monetary policy held a hearing on June 2, 2025, to examine recent volatility in the U.S. Treasury market and potential regulatory and market-structure responses, with witnesses and members pressing for timely implementation of central clearing and debating targeted changes to bank leverage rules.

The hearing matters because the Treasury market is the foundation of global finance: it sets the risk-free benchmark for other assets, supports Federal Reserve operations and allows the U.S. government to borrow cheaply. Lawmakers and market participants told the task force that recent episodes of stress — including a pronounced three-day move in April — show gaps in surge capacity and operational plumbing that could raise financing costs for taxpayers if not addressed.

Witnesses from the private sector and academia urged a mix of public- and private-sector changes. Nathaniel Werfel, head of market structure and product for global collateral at BNY, said the SEC's central-clearing rule is "the most significant change to treasury market structure in decades" and that "getting implementation right" is essential to realize benefits. Werfel described three priorities: finish central clearing, consider a narrow leverage-ratio adjustment for cash and Treasury positions to support dealer intermediation, and improve intraday and cross-pool settlement to make securities easier to convert to cash.

Stanford-affiliated economist Dr. Darrell Duffy told the task force that regulators should "fix the capital regulation known as the supplementary leverage ratio or SLR," expand "all-to-all" trading platforms, and separate Federal Reserve purchases intended to support market functioning from its broader quantitative-easing toolkit. He said those changes would expand surge capacity so dealers and other liquidity providers can absorb large, rapid flows without market dysfunction.

Several panelists warned that regulatory relief should be carefully targeted. Bloomberg Intelligence strategist Ira Jersey cautioned that "liquidity can sometimes be an illusion" and that balance-sheet constraints created after the 2007'009 financial crisis have reduced dealers' capacity to step into markets during stress. He and other witnesses said rules such as the leverage ratio, the liquidity coverage ratio and the net stable funding ratio interact and that exempting Treasuries from one requirement alone is not a panacea.

Witnesses and members debated practical steps. Proponents told the task force central clearing for eligible Treasury cash trades and repo would reduce counterparty credit risk and increase post-trade transparency; several witnesses said the SEC's recent timeline extension for implementation was helpful but urged continued coordination across regulators. Werfel and others recommended modernization of discount-window or intraday facilities and ways to move Treasuries more quickly across private and public liquidity pools, calling these operational changes essential complements to rule changes.

Some witnesses expressed caution about permanent broad exemptions. Professor Jill Centina of Mays Business School said central clearing is "foundationally important," but several witnesses including Centina and Dr. Duffy stressed the need for implementation runway and coordination to avoid unintended consequences. Professor Satina (testimony name) warned explicitly: "I do not support proposals to exclude banks reserve balances at the Fed from the leverage ratio," saying permanent exclusion could remove a key constraint on the Fed's balance-sheet size and introduce new risks.

Members pressed witnesses about the role of Treasury issuance and fiscal policy. Ranking Member Vargas and others cited rising federal debt and CBO projections discussed in testimony as background to the market-structure debate, noting that larger issuance increases the market's demands on intermediation capacity. Witnesses repeated that long-run fiscal paths matter for investor demand even as short-term market plumbing and regulation determine surge resilience.

No formal votes or motions were taken. Committee leaders said the hearing record would remain open and members would submit additional written questions; witnesses were asked to respond by June 23, 2025.

The hearing closed with broad agreement among panelists that a coordinated package of operational improvements, completed central clearing, greater post-trade transparency and narrowly targeted capital-accounting adjustments would collectively increase the Treasury market's ability to absorb large, rapid flows while maintaining financial stability.