Miki Bowman’s paying off for Wall Street already.

Just weeks after assuming a role which should be reserved for people who harbor more in the way of skepticism towards whatever large banks happen to be demanding from the Fed at any given time (usually lighter-touch regulation), Bowman was pleased to roll out a proposal for bank-friendly modifications to the eSLR.

If that sounds uninteresting to you, you’re not wrong. It’s a mind-numbingly boring discussion, but it’s also important. I’ll spare you the tedium: The Fed wants to cut capital requirements for large banks such that their modeled capacity to absorb losses would be diminished, albeit not by a lot.

Why would you want to do that? Well, the general argument for lengthening banks’ leashes is everywhere and always the same: They (the banks) claim that regulations prevent them from serving some useful purpose, whether it’s lending or, in this case, intermediating in a Treasury market which, on some interpretations, is increasingly prone to bouts of illiquidity and outright dysfunction.

Long story short, the eSLR’s a leverage capital requirement, as distinct from a risk-weighted capital rule. So, it doesn’t distinguish between the risk profile of a given institution’s exposures. The concern centers around the notion that rather than serve as a backstop for the risk-weighted capital rules, the eSLR can be a “binding constraint,” which in this context means it limits banks’ capacity to “engage in lower-risk, lower-return activities,” like Treasury intermediation.

Is that just a belabored excuse to give banks a break they don’t need? Yes. But also no. There’s something to the notion that the eSLR, as structured, isn’t doing much to keep the banking system safer and may even be making it less safe at the margins by encouraging regulatory arbitrage at the expense of Treasury market function, which is just about the last thing you’d want to accomplish as a regulator.

Still, I can’t help but chafe when someone plays the Treasury liquidity card to justify relaxing capital rules for banks. Like this: “Do you want the Treasury market to blow up? No, of course you don’t.”

Bowman did just that earlier this week. “We do not know exactly what circumstances may lead to a future stress event or how it will manifest,” she warned, at a Czech National Bank event. “Continuing to impose unwarranted limits on dealers’ intermediation capacity could exacerbate a future stress event in this critical market.”

Again, and while readily acknowledging we’ve seen several episodes of Treasury market dysfunction over the past five years, including in the sessions following Donald Trump’s “Liberation Day” unveil in April, that sort of rhetorical exercise feels uncomfortably like fearmongering in the service of something that may not be as appealing were the alternative not presented in such foreboding terms.

Recall that during the early days of the pandemic, the Fed temporarily exempted Treasurys from the SLR calculation. That exemption expired years ago, but there’s talk of reinstating it and making it permanent.

Bowman on Wednesday called the eSLR proposal “an important first step in balancing the stability of the financial system and Treasury market resilience,” before soliciting feedback “on a number of alternatives,” one of which is indeed the exclusion of Treasurys from the SLR denominator.

I’ll have more to say about the political aspect of this later, but it should be noted that one way to address waning foreign demand for US Treasurys is to free up domestic banks to buy them.

Asked by Bloomberg in May about possible capital exemptions for Treasurys, Scott Bessent said, “You know, I’ve seen estimates that we could bring yields down by tens of basis points.”