The Federal Reserve has given final approval to a rule that will let banks include investment-grade municipal bonds among the assets they use to meet regulatory requirements to ensure they have sufficient liquidity to weather a crisis.
The Fed and other U.S. financial regulators adopted the liquidity coverage ratio requirement in October 2014 as a response to bank deficiencies highlighted during the 2008 financial crisis. The central bank split with the other agencies in moving to include munis in the rule, which requires large banks to hold enough high-quality liquid assets to get through a 30-day period of financial stress.
The central bank, which announced its completion of the rule in a statement Friday, said it relied on an analysis that suggested certain munis should qualify because they have liquidity characteristics similar to assets such as corporate debt securities.
The rule, which takes effect July 1, applies only to Fed-supervised lenders subject to the liquidity coverage ratio requirement.