In a recent paper, researchers from MIT and the Brookings Institution examined central clearing for Treasury cash and repo, a key regulatory initiative designed to strengthen the resilience of Treasury market intermediation. Central clearing can reduce risks and increase dealer balance sheet capacity through netting of repo across different market segments. Researchers estimated, based on data in April 2025, that netting benefits for primary dealers would be substantial if their Treasury repo were centrally cleared.
These balance-sheet netting benefits combined with targeted changes to the supplementary leverage ratio (SLR) could increase intermediation capacity and improve the elasticity of market liquidity without significantly increasing risks. These reforms will have substantial benefits for Treasury market resilience but ultimately resilience will also require efforts to reduce the rapidly growing amount of debt.
Research analysis found that central clearing could enable hundreds of billions of dollars in additional balance sheet capacity for primary dealers, which, in turn, eases pressures to significantly reduce the SLR.
Moreover, targeted reductions in the SLR could further expand capacity and increase the elasticity of intermediation, without significantly increasing risks to safety, soundness, and financial stability. The most challenging aspects of SLR reform involve careful deliberations to avoid materially increasing interest rate risk for banks while still supporting the ability of dealers to provide Treasury market liquidity in periods of financial market stress.
Central clearing’s balance sheet netting benefits are also additive to other Treasury market reforms to improve intermediation capacity, including enhanced all-to-all trading capabilities and official-sector liquidity support facilities. All these efforts help to reinforce the role of Treasury securities in global financial markets as a safe, highly liquid asset.
“We estimate that central clearing of Treasury repo has provided hundreds of billions of dollars of balance sheet netting so far — and will release additional hundreds of billions of dollars more balance sheet space as central clearing continues. Treasury clearing thus complements proposed revisions to the supplementary leverage ratio (SLR). A moderate reduction to eSLR surcharge, the exclusion of Treasury securities held in the trading book, and the exclusion of central bank reserves are all low-risk options for SLR reform,” wrote Haoxiang Zhu, finance professor at MIT and one of the academic paper’s authors, in a social media post.