Relaxing the SLR will increase banks’ liquidity. By exempting (or lowering the capital charge on) U.S. Treasuries from the Supplementary Leverage Ratio, large banks free up balance‐sheet capacity they’d otherwise have to hold in reserve. That means:
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More high-quality liquid assets count toward their liquidity buffers without eating into capital ratios.
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Greater capacity to intermediate—banks can step in as market‐makers in the Treasury market more readily, supporting trading desks and repo operations.
In plain terms, a 1 percentage‐point cut in the SLR is estimated to unlock up to $185 billion of extra capacity at the big banks, making short-term, secured financing (i.e. liquidity) more plentiful and cheaper.
This excess liquidity has to flow someplace, I don't expect a windfall of bank lending to small businesses. I expect liquidity finding its way to what many consider less risky assets including Bitcoin, gold, and some stocks to benefit from this liquidity injection. The Trump administration is also cutting taxes, decreasing spending on the bottom 90% of citizens. AI is enabling companies to have capacity increase with half their tech workers increasing corporate profits even if their topline is reduced.
These changes will supercharge some assets and corporations.
What we are witnessing is the final separation of the rich vs the poor, and the rich have liquidity to put money into assets. This will continue until the people require it to stop.
For me, the pivot here is to cover my shorts - again - on this next leg down, and go long less risky assets that will catch the liquidity.
This all ends very badly, but not in 2025 once SLR is changed. The administration is shifting the crisis to the private sector.
This videos covers some indicators of we are getting closer to the next leg down.
