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Heard at Ops: PwC’s Chris Pullano on Treasury market resiliency

As part of the Heard at Ops series with top operations and technology leaders, Chris Pullano, Partner at PwC, discusses why regulators are looking at reforms to the U.S. Treasury markets as well as some of the potential changes to strengthen resiliency in these markets.


Q. Why has the focus turned to Treasury market resiliency?

A. There were a couple of market disruption events in late 2019 and again in March 2020, at the start of the pandemic, which have raised questions about the resiliency and structure of the U.S. Treasury markets – so there is a push for an added layer of resiliency. These critically important markets finance the federal government, creating low risk investments and bringing that money to bear to the U.S. population.

On the broader topic of resiliency, the regulatory environment has been very focused in past years on business continuity planning, recovery, and resolution management at the entity level and now there’s a focus on more existential questions that go beyond that. If your infrastructure is run by a vendor and that vendor cannot operate it anymore, what is your plan? If you have a single clearing bank for Treasuries, what happens if the clearing bank can no longer serve that function? Challenging questions.

Q. How can the industry work together to strengthen the resiliency of these markets?

A. Possible solutions include a combination of efforts of the primary dealers and of the buyside firms as well as specific changes to the capital rules and capital requirements. Any change should make it easier for dealers and for banks to participate in the Treasury markets – making it less capital intensive and enabling them to provide liquidity when it’s needed.

In a worst-case scenario, the Federal Reserve would then step in to provide support for smooth market functioning.

But, at this point, further discussion is needed to understand the impact of any potential changes.

Q. What will be the greatest challenge that the industry will face over the next few years?

A. Inflation is a big challenge. As interest rates go up, how far do you move them? You don’t want to start a recessionary cycle.

However, given this challenge and managing day-to-day operations, it’s amazing to see how innovation continues with digital assets as well as firms creatively automating business in the capital markets. On top of that, the industry is also focused on resiliency and exploring ways to tighten things up even more for the markets to run better.

Q. How does connecting with groups like SIFMA help you and the industry?

A. It’s a great relationship. I have been working with SIFMA and its predecessor organizations for many years. It is important to the industry to share information and collaborate to solve critical problems. When there is an issue or something comes up that requires a working group or an industry project, working with SIFMA brings together the expertise needed from across the ecosystem to talk about issues in the capital markets and address them.

At the firm level, at PwC, it’s about solving important problems for our clients. At the industry level, we can bring our expertise to help reach a solution.

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Christopher Pullano is Partner, Financial Services Advisory, at PwC .

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