Fed Meeting Minutes Show Participants Expressed Concerns About the U.S. Treasury Market

　　According to the minutes of the Federal Open Market Committee (FOMC) meeting held on July 29-30, multiple participants commented on the vulnerabilities of the U.S. Treasury market and expressed concerns about dealers’ intermediation capacity, the growing presence of hedge funds, and vulnerabilities arising from low market depth.

　　Regarding banks, some participants also noted that although regulatory capital levels remain strong, some institutions are still vulnerable to rising long-term yields and the associated unrealized losses on bank assets. Some participants discussed foreign exchange swaps, noting that these products are a “key source of U.S. dollar funding for foreign financial institutions to provide U.S. dollar loans to clients in the U.S. and abroad,” but also have vulnerabilities such as maturity mismatches and rollover risks.

　　Many participants discussed the recent and future developments of stablecoins and their potential impact on the financial system. Participants noted that stablecoin usage may grow following the passage of the Stablecoin Act (GENIUS Act) and explored how stablecoins could help improve the efficiency of payment systems. They also observed that stablecoins could increase demand for the assets backing them, including U.S. Treasuries. Participants expressed concerns that stablecoins could have broader implications for banks and the financial system, as well as for the implementation of monetary policy, warranting close attention, including to the various assets used to back stablecoins.