Wall Street’s complaints that new rules have hurt bond-market liquidity got a boost Monday when a Federal Reserve governor said forcing banks to hold more capital might be discouraging them from facilitating trades.
Though financial regulations “had little to do” with Treasury market volatility last October, they “may be one factor driving recent changes in market-making,” Fed Governor Jerome Powell said at a Brookings Institution conference in Washington. “Requiring that banks hold much higher capital and liquidity and rely less on wholesale short-term debt has raised funding costs,” he said.
