WASHINGTON – The House passed a bill Monday by voice vote that could make certain municipal debt securities more attractive to banks.
The legislation from Reps. Luke Messer, R-Ind., and Carolyn Maloney, D-N.Y., would require federal bank regulators to classify investment grade, liquid and marketable municipal debt as higher quality for purposes of the liquidity coverage ratio, which the Federal Reserve Board finalized in 2014.
The Fed already made a similar proposal last year that are similar to those required by the bill, but the legislation would also apply to the Office of Comptroller of the Currency and the Federal Deposit Insurance Corp.
States, cities and public utilities have pushed for the classification of municipal debt as a higher tier under the LCR because it will lead to more favorable financing terms.
"Classifying investment grade municipal securities" as high-quality liquid assets "will help ensure low-cost infrastructure financing remains available for municipal securities issuers to continue to build the infrastructure for commerce, public safety, job creation and the development of an educated workforce that our communities and national economy rely on," according to a letter sent last year from 16 municipal trade associations, including the National Governors Association and U.S. Conference of Mayors, to John Boehner, R-Ohio, who at the time was speaker of the House.
Banks have also favored the change. James Ballentine, executive vice president at the American Bankers Association, wrote a letter in support of the bill to members of the House earlier on Monday.
"ABA has long argued that the high quality nature of municipal securities should be recognized under the LCR," Ballentine wrote. "Allowing a more diverse set of assets will strengthen the credibility of the LCR by ensuring that the definition of HQLA incorporates the significant variety of liquidity sources that banks have safely relied upon in the past."
The LCR is designed to help banks remain solvent for at least 30 calendar days during adverse market conditions.
The bill had bipartisan support after passing out of the House Financial Services Committee by a vote of 56-1 in November.
"Democrats and Republicans understand that if Congress passes this bill it will be a big win for state and local governments' efforts to finance infrastructure and other projects," Maloney said. "The decision to exclude investment grade municipal bonds from the liquidity buffer was senseless, and municipalities across the country were being hurt as a result."