Office Hours with Gary Gensler: U.S. Treasury Markets

This video can be viewed at the below link.[1]

What does the $1 bill have to do with the U.S. Treasury Markets? And what do either have to do with the Securities and Exchange Commission?

Well, you see, the federal government borrows from the public in two ways. One: it prints and issues that cash. In fact, look at what's on the back of the $10 bill, it's the U.S. Treasury Department. Further, it issues Treasury securities. If you pull a $1 bill out of your pocket, what do you see on the reverse? The great seal of the United States, the eagle on the right, and the pyramid on the left.

Well, here at the Securities and Exchange Commission, we are coming up on our 90th birthday. The design on the reverse of the current U.S. dollar, though, is more of a spring chicken. It's one year younger, established in 1935. Franklin Roosevelt had a hand in designing both this design on the back of the U.S. dollar and the SEC. Further, the two are related.

Our job at the SEC is to oversee the capital markets. The capital markets play an integral role in preserving the dollar as the dominant world currency, and that dominance benefits all of us. It means lower cost for borrowing, not only for the U.S. Treasury, but also for everyone else borrowing in dollars. And to preserve that dominance, the capital markets must have a safe, liquid, and reliable asset in which to invest.

That's where the $27 trillion Treasury markets come in. They're the base of the pyramid of our capital markets. And even the base of a pyramid can get shaky at times. We've experienced such jitters in the Treasury markets not once, not twice, many times from

the 1980s, all the way through when COVID broke out. And when the base of the pyramid shakes... That's not good for the capital markets, for the dollar, or for you.

That's why we've recently finalized a number of rules regarding the U.S. Treasury Market. And one of those relates to the market plumbing itself through something called “central clearing.” Such plumbing helps ensure that cash and the securities change hands in an orderly way. Clearing houses which lower risk by standing in the middle of the markets. They're the buyer to every seller, the seller to every buyer.

Given changes in the markets in recent decades from electronification to high frequency trading, when it comes to the U.S. Treasury Markets, only a small part of the plumbing at the base of the pyramid is being used. I know the ancients didn't have modern plumbing, but we don't want to live like the ancients.

Our rules will bring more of the U.S. Treasury markets into this plumbing. That makes the base of the pyramid more efficient, competitive, and resilient. In other words, more sturdy and less messy. That strengthens, not only the U.S. Treasury Market, but the dollar in your pocket.