Wall Street’s largest banks have sharply increased their holdings of U.S. government debt, reaching levels not seen since before the global financial crisis, in a shift that is reshaping the structure of the Treasury market.
Data compiled from the Federal Reserve Bank of New York show that primary dealers—major banks that underwrite and trade U.S. government bonds—now hold roughly $550 billion in Treasuries on average in 2026, up from under $400 billion a year earlier. That represents about 2% of the $31 trillion market, the highest share since 2007.
The surge is being driven largely by regulatory changes. U.S. authorities recently eased capital rules, particularly the supplementary leverage ratio (SLR), reducing the burden on banks holding low-risk assets like Treasuries. This has encouraged firms including Morgan Stanley and Bank of America to allocate more capital to bond trading and market-making activities.
Analysts say the return of banks to the Treasury market could improve liquidity and stability. Following tighter regulations after the 2008 crisis, banks had reduced their role, allowing hedge funds and other leveraged investors to dominate trading. Their re-entry is seen as a potential buffer against market volatility.
However, risks remain. Hedge funds still account for a significant share of Treasury trading, often using high leverage strategies that can amplify market stress during periods of volatility. Some analysts warn that while banks’ growing presence may strengthen the system, it could also coincide with hidden fragilities elsewhere in the market.
The shift comes at a time of rising U.S. government borrowing needs and heightened scrutiny of who will absorb the growing supply of debt. With foreign demand fluctuating and fiscal pressures mounting, Wall Street banks are once again playing a central role in financing the world’s largest bond market.
For now, the increase in Treasury holdings signals a notable reversal from the post-crisis era—marking a renewed willingness among major banks to take on a bigger role in one of the most critical segments of global finance.
