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Today, the House Financial Services Committee is holding a Monetary Policy, Treasury Market Resilience, and Economic Prosperity Task Force hearing, led by Task Force Chair Frank D. Lucas (OK-03), to examine the role of primary dealers in the Treasury markets and how rising government debt issuance affects their ability to make markets and participate in Treasury auctions.

Read Task Force Chair Lucas’ opening remarks as prepared for delivery:

"Welcome to today’s hearing from the Task Force on Monetary Policy, Treasury Market Resilience and Economic Prosperity.

"I want to start by thanking Chairman Hill, Ranking Member Vargas, and our witnesses for their flexibility in rescheduling this hearing after the government shutdown delayed our October plans.

"The Treasury market is the deepest, most liquid, and most essential market to the global economy.

"Our focus today is on the primary dealers that intermediate in that market and the regulatory and administrative burdens that constrain their ability to do so.

"Primary dealers facilitate trades between the Treasury, foreign central banks, pension funds, and asset managers, among others. Our market structure relies on primary dealers to ensure steady demand for the nation’s debt and the effective implementation of monetary policy.

"Capital requirements such as Basel III, the G-SIB surcharge, and risk-insensitive leverage ratios have undermined primary dealers’ intermediation capacity. Robust participation from intermediaries in the Treasury market is essential to the markets’ ability to function well amidst stress and volatility.

"Congress must continue to evaluate the health of the market particularly as the capacity to intermediate does not grow commensurate with the government’s ever-growing issuance of debt.

"Market disruptions in 2014, 2019, and 2020 demonstrate the need to examine and re-evaluate the limitations and constraints regulations may inadvertently put on the Treasury market.

"This morning, Vice Chair Bowman testified before the full Committee, and we agreed that our capital framework should not unnecessarily constrain the intermediaries our market relies on.

"That’s why I was pleased to see the Fed finally adjust the enhanced supplementary leverage ratio to remove the disincentive for banks to engage in low-risk activities such as holding Treasuries, but more is yet to be done. 

"Capital regulations may need adjustment to properly recognize treasuries as nearly risk-free assets, particularly as liquidity regulations require an increase in the volume of these liquid assets banks are holding.

"Other leverage ratios, such as the supplementary leverage ratio and tier one leverage ratio, may also need to be adjusted to increase balance sheet capacity and ensure they function as intended: a backstop to risk-weighted capital requirements, not a binding constraint on intermediation.

"I also continue to agree with Governor Miran – excluding treasuries and reserves from the SLR and eSLR would help insulate the Treasury market from potential disruption during periods of market stress.

"Finally, I intend to ask GAO to re-examine the operation of the treasuries market including its operations, risks, and regulatory structure. The last time this report was conducted was in 1986 – the landscape has changed since then. We should get an updated report.

"I look forward to the discussion today. I yield back."