A new plan would loosen bank rules so banks soak up government debt — likely good for stocks and bond markets short-term, bad for anyone worried about inflation and a weaker dollar.

• Banks want to buy more Treasury bonds but a capital rule (the SLR) caps how much they can hold.
• Kevin Warsh's plan would permanently lift that cap, like the temporary break banks got during COVID in 2020.
• With the rule gone, banks borrow cheap, pile into bonds with heavy leverage, and pocket the spread.
• This lets banks absorb the bonds the Fed is selling, so the Fed shrinks while banks grow.
• The end result acts like quantitative easing — money printing — just run through banks instead of the Fed.

Outlook: If the rule is loosened, expect a flood of bank money into Treasuries and renewed money-printing pressure, even without the Fed officially restarting it.