Back to the future(s): rethinking treasury market intermediation in the age of Basel III

Abstract This paper examines the post-crisis restructuring of US Treasury market intermediation through a Minskyan and post-Keynesian evolutionary lens, highlighting the growing centrality of non-banking financial institutions, such as mutual funds, hedge funds, principal trading firms, and prime brokers, in a financial architecture increasingly organized around derivatives and synthetic leverage. Post-crisis regulatory reforms, particularly those associated with Basel III, functioned as deliberate thwarting mechanisms by constraining dealer balance sheets and limiting traditional market-making. While these measures strengthened bank resilience, they also triggered adaptive responses that reconfigured the infrastructures of liquidity provision. This paper argues that futures contracts have emerged as a workaround to these constraints, enabling market participants to replicate Treasury exposures, intermediate liquidity, and economize on balance sheet usage under regulatory constraint. Focusing on practices such as the cash-futures basis trade, it shows how futures-based intermediation allows leverage and duration transformation to migrate away from dealers toward non-banks’ balance sheets. In doing so, the paper shows how regulatory stabilization at the level of banks has generated new, endogenous sources of fragility within Treasury markets, consistent with post-Keynesian accounts of financial instability as an evolutionary and recurrent process.