Commercial Bank Holdings of Treasury Debt
Even conservative estimates of future federal government deficits suggest that the U.S. Treasury’s borrowing needs will continue to be large in the months ahead. The impact of the increase in Treasury debt resulting from large, persistent deficits on financial market rates and flows will depend on the strength of the demands made by certain classes of investors for such securities. The absorption of Treasury debt by commercial banks is of particular concern, because traditionally banks have held more Treasuries than any private domestic sector except households.
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