Since the start of April the US Government has raised a net $3.3trn to fund its stimulus programmes. There is a danger that America’s financial plumbing cannot cope.
It would be wise to mend the pipes before the next torrent of issuance gushes down them. Some quick fixes are obvious. A temporary exemption of cash and Treasuries from banks’ leverage ratios should be made permanent. Banks should not have to hold capital against assets which are all but risk-free. And the number of primary dealers could also be expanded, so that it matters less if any one of them gets into trouble. But it would be better still to implement a deeper overhaul. The primary-dealer system is needlessly complex and would never be designed from scratch today. It should be phased out in favour of a central clearing house for Treasury trades which would let smaller firms deal with each other without an intermediary clogging up the market. More debt issuance could take place without middlemen, too.