treatment, the par amount of the debt pledged as collateral to the facility could partially or fully offset the par amount of the securities that are lent. However, because the SLLR would likely use the market value of the collateral to determine the market value of borrowed and margined securities, to the degree that market values and par values differ, there would not be a one-forone debt limit accounting offset in a bond-for-bond SLLR structure. For example, if all securities trade close to their par values, borrowing at the SLLR would tend to reduce the debt subject to the limit because the par value of securities pledged as collateral (including the margin) would tend to exceed the par value of securities borrowed. However, if the market value of pledged securities were substantially above par value, borrowing from the SLLR would likely increase the debt subject to limit.

Given this uncertainty, Treasury might need to suspend the SLLR lending activity during the period leading up to debt-limit increases unless there is a legislative change to the current debt limit treatment. • Tax Treatment Some tax issues would need to be addressed. For example, to ensure that Treasury securities borrowed from the lending facility are fully fungible with the outstanding securities, both the outstanding securities and the securities borrowed from the facility would have to be treated for federal tax purposes as being part of the same issue. It may be necessary to seek legislation regarding this treatment. 7. Conclusion As noted at the outset, maintaining a safe, efficient, and liquid Treasury market is a critical public policy objective.

Treasury is seeking comments on whether a well constructed SLLR might provide low cost insurance against certain types of market disruptions during times of financial market crisis. An ideal facility would rarely be utilized, but would be available to mitigate strains in the Treasury market and in broader financial markets. As noted above, there are potential costs to be considered as well, including possible increases in moral hazard and the risk of significant gaming of the facility. Public input in evaluating and designing a SLLR is essential and we invite comment on any aspect of the proposed facility, including whether it should be established at all.

Treasury takes no position on whether a SLLR should be established or, if such a facility were established, how it should be structured. In this regard, comments focusing on potential benefits and costs associated with a SLLR together with an overall assessment of the desirability of establishing a SLLR would be particularly useful. In addition, comments on the various facets of the proposed structure, including various terms and conditions and other operational details, would also be most welcome. 12 .