As we reported in our January 3, 2017 post, a Fed staff report published in December 2016 found that the Volcker Rule was harming bond liquidity. Not a month later, a new Fed staff working paper published this week found that regulations limiting banks’ balance sheets like the Supplementary Leverage Ratio have made repurchase agreements (repos) more expensive for dealers, and this in turn has had negative affects on on liquidity in the cash Treasury market. The authors note that it is well known that repos are widely used in cash market intermediation, especially for shorting. But, until now, it has not been clear how limiting dealer leverage would translate into lower liquidity. By modeling how dealers use repo to intermediate in the cash market, the authors, Yesol Huh and Sebastian Infante, have identified the direct linkage between repo markets and cash market liquidity.