SCHUMER: NEW FEDERAL RESERVE RULE ON MUNICIPAL BONDS COULD SLOW OR HALT CRITICAL INFRASTRUCTURE PROJECTS IN MAJOR CITIES ACROSS THE U.S. – CALLS ON…
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SCHUMER: NEW FEDERAL RESERVE RULE ON MUNICIPAL BONDS COULD SLOW OR HALT CRITICAL INFRASTRUCTURE PROJECTS IN MAJOR CITIES ACROSS THE U.S. - CALLS ON FED AND REGULATORS TO REWORK WRONGHEADED PLAN
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SCHUMER: NEW FEDERAL RESERVE RULE ON MUNICIPAL BONDS COULD SLOW OR HALT CRITICAL INFRASTRUCTURE PROJECTS IN MAJOR CITIES ACROSS THE U.S. - CALLS ON FED AND REGULATORS TO REWORK WRONGHEADED PLAN
A New Federal Rule That Prevents Large Financial Institutions from Counting Municipal Bonds as High Quality Liquid Assets Could Make Municipal Bonds, Key for Major Cities Financing Infrastructure Projects, Less Desirable
Officials and Mayors from Cities across the Country Including New York,
Schumer: New Rule Could Slow Growth and Development When We Need It The Most and Must Be Fixed
Today, U.S. Senator
The rule does not allow municipal bonds to count toward an institution's high quality liquid assets, despite the fact that municipal bonds from cities like
"It is hard to understand how all three federal regulators finalized a rule last week with such glaring inconsistencies. The rule inexplicably excludes all municipal securities from being considered as High Quality Liquid Assets, and could have a chilling effect on infrastructure development in cities and states from coast to coast if it's not revised," said Schumer. "Financial experts agree that certain municipal bonds should be considered high quality liquid assets and financial institutions ought to be able to count them that way. The broad exclusion of all municipal bonds from counting as HQLA under the current rule makes no sense on the merits and could have disastrous side effects, so I hope the regulators will heed our call and reconsider it quickly."
In a
Investment-grade municipal bonds have comparable, if not better trade volume and price volatility, and they performed well through the financial crisis. In fact, in 2008 and 2009, price declines on AAA corporate bonds were greater than the price declines on both AA municipal general bonds and revenue bonds. And this doesn't even touch on the fact the new rules permits foreign sovereign debt to be qualified as HQLA, while these municipal bonds are not."
A copy of
Dear
First, I want to thank each of you and your agencies for the hard work and coordination that has gone into developing the Liquidity Coverage Ratio (LCR) rule and commend all of your efforts to promote liquidity resilience amongst our financial institutions both large and small. I also would like to thank you for your thoughts and comments expressed during the
Investment grade municipal bonds not only serve as a mechanism through which we are able to create jobs and finance critical infrastructure, but these securities can also serve as high quality assets that adequately cover liquidity outflows during periods of stress. Investment grade municipal bonds have been shown to be widely held, with high trading volume and limited price volatility. In fact, in 2008 and 2009 price declines on AAA corporate bonds were greater than the price declines of both AA municipal general obligation bonds and municipal revenue bonds.
The blanket exclusion of this type of debt from being considered as a HQLA under the LCR has the potential to create a disincentive for banks to hold investment grade municipal securities, in addition to increased costs to cities and states seeking financing for infrastructure projects across the country. This is particularly impactful for cities like
These debt issuances from certain state and local municipalities are considered high quality liquid assets by the markets and they should be treated as such under the rule. Developing criteria to assess the liquidity and performance of various municipal bond offerings would have been a more tailored approach than what was used in the rule finalized on
During the hearing,
Thank you again for your willingness to reevaluate the rule and consider making adjustments to account for those municipal bond offerings that are very highly liquid and appropriately meet the liquidity standards necessary to qualify as High Quality Liquid Assets. I would encourage the Federal Reserve,
Sincerely,
U.S. Senator
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