Looser regulations under the Trump administration have prompted banks to re-enter the $31 trillion U.S. Treasury market, with Wall Street dealers' holdings of government debt rising to their highest level since the global financial crisis.

According to calculations based on data from the New York Federal Reserve, the net Treasury inventory of primary dealers—large banks that underwrite U.S. government debt—has increased this year to an average of around $550 billion, up from less than $400 billion in 2025. These holdings now account for approximately 2% of the entire Treasury market, the highest proportion since 2007.

Analysts, investors, and financial industry executives say that easing U.S. capital rules is encouraging major banks to facilitate more Treasury trading, helping them reclaim some of the market share lost to other financial groups after the 2008 crisis.

Ajay Rajadhyaksha, Global Chairman of Research at Barclays, stated, "Due to regulatory changes, and also a shift in regulatory thinking, banks are now larger intermediaries."

U.S. regulators finalized plans late last year to relax the so-called Enhanced Supplementary Leverage Ratio (SLR), which sets the minimum amount of non-risk-adjusted capital that the largest U.S. banks must hold against their total assets.

This effort, led by Federal Reserve Governor Michelle Bowman, has been welcomed by Wall Street executives. They have long argued that stricter capital rules forced banks to retreat from market-making activities.

Bowman, who was appointed by President Trump last year as the Fed's vice chair for supervision, has contended that while post-2008 regulations made banks safer, they also suppressed some low-risk activities and left the Treasury market more fragile.

Mark Cabana, head of U.S. rates strategy at Bank of America, noted, "We had previously been skeptical about whether these changes would materially affect banks' willingness to hold Treasuries."

"[But] we have evidence that the SLR has impacted dealers' Treasury holdings... [which] have risen significantly over the past few months," he said.

Morgan Stanley also indicated this month that it has allocated more capital to Treasury trading as a result of the revised SLR.

Before the financial crisis, large banks were the undisputed backbone of the Treasury market. Since then, hedge funds and specialized trading firms have taken on a larger and more significant role.

Their expansion as buyers and market makers is crucial at a time when tax cuts and large spending programs have pushed the federal deficit to 6% of U.S. GDP.

However, these new entrants have also introduced unprecedented leverage into the market and increased the risk of dysfunction during panic trading. During the 2020 market turmoil, the Fed had to intervene—when the rapid unwinding of a popular hedge fund trade exacerbated the sell-off.

Yesha Yadav, a professor at Vanderbilt University Law School who specializes in Treasury market regulation, warned that since banks are not obligated to act as market makers, there is no guarantee that regulatory easing will permanently draw them back into the market.

Yadav said, "We are removing these balance sheet rules, but there is no guarantee that it will work."

Jay Barry, head of global rates strategy at JPMorgan, also expressed caution: "Primary dealers will not play the same role they did pre-2008. The way trading happens is just very different."

He added, "While intermediation and market-making are returning, the market structure has changed. Hedge funds and high-frequency traders now command a larger share, and that is not going to change."