Arthur Hayes Reacts to Exemption of Treasuries From US Bank SLR

In a bold and impactful regulatory change, the US bank regulators are looking to exempt Treasuries from the supplemental leverage ratio (SLR), generating sharp reactions across the financial spectrum. One of the most prominent and closely followed voices in crypto and macro finance, Arthur Hayes, has weighed in on the implications of US banks exempting Treasuries from the SLR, not only for the banks but for central bank monetary policy and market stability going forward. 

Hayes, the co-founder and former CEO of BitMEX, has consistently pointed out the existing structural weakness in traditional banking and monetary systems; therefore, his reaction to the Treasury exemption represents deeper systemic pressures brewing under what seems like a technical adjustment on the surface. As Hayes aptly noted in his last newsletter, the exemption is more than a capital releaser, it is an early warning of systemic stresses and pressures building within the US economy. 

What the Treasury Exemption Means for Banks? 

The supplementary leverage ratio was introduced after the 2008 crisis to require banks to hold a minimum amount of equity against total assets and include riskless assets such as Treasuries in that metric. We’ll work to diminish that levering potential, likely to enable banks of all sizes to decrease their capital burdens when they engage with Treasuries and subsequently provide fuel for liquidity in a $29 trillion market. 

It’s also worth noting that the regulators aren’t just eliminating Treasuries from the calculation entirely, but likely looking to decrease the eSLR by an amount of up to 1.5 percentage points. It may seem like a small number, but it has huge implications for the capital buffer requirements of the largest US banks. The reasoning? If you’re not going to penalize banks for holding Treasuries, they would be more willing to serve as the intermediaries we need in the Treasury market, especially in times of economic stress.

Arthur Hayes’ Reaction: A Warning Signal, Not a Win

Arthur Hayes doesn’t see this as a simple technical fix. In a recent commentary, he suggests that the Treasury exemption is more of a red flag than a reform. He argues that when regulators begin loosening capital rules, it’s often a sign that the system can no longer support its own weight. To Hayes, this move confirms that the US government needs ever-increasing demand for its debt, yet the natural buyers (banks and foreign governments) are losing appetite. 

Removing Treasuries from leverage calculations is just a workaround to keep the machine running. It doesn’t solve the core issue: excess debt and weak underlying demand. In his view, the Treasury exemption could push banks into taking on more risk without addressing the long-term consequences. The capital buffer, after all, is meant to prevent systemic blowups.

Implications for Treasury Trading and Systemic Risk

Supporters of the move say this will help unclog the Treasury market, allowing smoother auctions, tighter spreads, and more predictable pricing. They point to past crises, like March 2020, when capital rules made it hard for banks to step in and stabilize the market. But as Hayes and other critics point out, there’s no guarantee that banks will jump into the Treasury market just because they can. 

And if they do, it may encourage balance sheet expansion without the protection of strong capital reserves. The broader concern? If banks use the freed-up space to chase yield rather than hold safe assets, the system could grow more leveraged and brittle over time. In Hayes’ framework, this isn’t stability, it’s financial repression masked as reform.

Is the SLR Now Just a Placeholder?

By exempting Treasuries, even partially, the SLR starts to lose its teeth. Hayes argues this may be the beginning of a larger trend: bending post-crisis safeguards to meet short-term liquidity needs. Once a buffer becomes negotiable, it raises questions about what other assets might be carved out next. 

This creates a slippery slope where capital rules become political tools rather than neutral regulators of risk. Hayes sees this as a critical juncture, not just for bank policy, but for the future of monetary credibility. If regulations bend every time debt becomes uncomfortable, what limits are truly left?

A Temporary Fix or a Structural Fault Line?

Hayes’ reaction to the Treasury exemption is more than just a critique; it is a word of warning. While many in the traditional finance world consider the temporary rule change a step in the right direction for modernization, Hayes places it in a longer-term trajectory that is further away from stability. 

Whether end-of-year Treasury trading rebounds or marks the beginning of a real crisis will depend on how banks respond, whether regulators follow through, and whether capital buffers mean anything anymore in the newly loosened regime. For the time being, one thing is certain: the Treasury exemption has sparked a wider discussion about how much the US financial system can stretch before it snap.