Press Releases

Today, the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, led by Chair Frank Lucas (OK-03), held a hearing exploring the role of primary dealers in Treasury markets and how increasing government debt issuance impacts their capacity to make markets and participate in Treasury auctions. Members also discussed how central clearing could help relieve balance-sheet pressures on primary dealers and what steps might encourage additional institutions to join the primary dealer system.

On Primary Dealers Can Help the National Debt:

"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,” said Subcommittee on Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity Chairman Lucas (OK-03).

On the Importance of Primary Dealers:

"Primary dealers are stretched thin when Treasury must issue more and more debt to finance the operations of our government, the more debt we issue, the more capacity required to release those notes and securities to the Treasury market. Let me be clear, the long-term solution here is to simply tackle the problem of overspending. We need to get our fiscal house in order. If we curb our deficit and issue less debt, less primary dealer capacity is required. Better yet, if we actually stop running a deficit and run a surplus to start paying down, that's outstanding. However, in this budget environment, a well-functioning and liquid market for treasuries is absolutely essential, and primary dealers are a very important piece of that puzzle," said Subcommittee on Housing and Insurance Chairman Mike Flood (NE-01).

Rep. Marlin Stutzman (IN-03) stated, "...Our country has a serious spending problem. The federal government, I should clarify. And primary dealers provide steady demand for our ever-growing debt. However, the size of bank balance sheets has not kept pace with our out-of-control spending, which we saw explode under the Biden Administration."

On the Growing National Debt:

Financial Institutions Subcommittee Chair Andy Barr (KY-06) said, "[This is a] very important hearing about the proper functioning of the treasury market with the growing debt load that we are foisting upon future generations of Americans. National debt is now 38 trillion and growing. I think, Ms. Mclaughlin, you said it best in your testimony when you said the greatest risk to the resilience of the treasury market is the level of the national debt itself. So, job number one is Congress needs to get our fiscal house in order. But in the meantime, we should continue to explore all avenues to support the market's capacity to intermediate treasury debt."

Rep. Troy Downing (MT-02) agreed by saying, “So, if the federal government cannot stop itself from spending and cannot help our banks to make it easier to buy our treasuries, the borrowing costs of my constituents and small business owners goes up. So, not only does government spending tax our constituents through inflation but also taxes them through higher interest rates.”

Witnesses Echoed the Work of the Committee:

Ms. Susan McLaughlin, Executive Fellow, Yale School of Management said, “It is sensible to periodically assess whether additional firms could productively be designated as primary dealers to support the dual objectives of monetary policy implementation and Treasury auction coverage, and whether changes to the primary dealer policy are warranted. But I would not recommend designating firms that are not two-way market intermediaries. Doing so would add little to capacity, while posing risks to the efficiency of monetary policy implementation. If the pro-rata requirement were to become increasingly difficult for primary dealers, requiring identification of additional auction participants that could help to support coverage needs, this strikes me as a fiscal matter that could be considered separately from the central bank’s responsibility for monetary policy implementation.”

Mr. James Tabacchi, Chairman, Independent Dealers & Trading Association said, “It therefore does not seem like a bold suggestion that the US Treasury and FRBNY should expand the Primary Dealer program to include more non-bank registered broker dealers. This measure would decrease the concentration risk in relying only on large depository institutions to implement monetary policy and ensure that a broader range of diverse and competitive participants, more accurately reflecting the Treasury market as a whole, is ready to maintain more consistent and deeper liquidity. This would also increase access to the SRF and the Overnight Reverse Repo program to participants who are more willing to make use of these facilities during times of stress, which is exactly when these facilities are designed to be used.”

Ms. Laura Klimpel, Managing Director, and Head of DTCC’s Fixed Income and Financing Solutions said, “By virtually any measure, the United States has the most liquid, efficient, and cost-effective financial markets in the world. The critical role that DTCC plays in the market may not be well known outside the financial services industry, but it fundamentally benefits all participants in capital markets, ranging from the largest public companies to main street investors. The expansion of U.S. Treasury Clearing is a significant industry-wide effort that promises to deliver critical benefits to the industry, including increased transparency and reduced risk. FICC will continue to work closely with our clients and key stakeholders on ensuring safe, smooth and successful implementation in 2026 and 2027.”