WASHINGTON — Members of the Senate Banking Committee introduced legislation Wednesday that would make municipal debt securities more attractive to banks.
The legislation would ensure that investment grade state general obligation and municipal securities are treated as high quality liquid assets and the same as corporate debt under a liquidity requirement for large banks.
"Our legislation would allow banks to count qualifying municipal debt as high quality liquid assets, helping to maintain demand for the debt which would prevent borrowing rates for municipalities from dramatically increasing," Sen. Mike Rounds, R-S.D., said in a statement.
Sens. Mark Warner, D-Va., and Chuck Schumer, D-N.Y., helped Rounds lead the effort to introduce the legislation that was signed by seven other members of the Senate panel.
Federal regulators require banks to hold enough high quality liquid assets to be able to fund their operations for 30 days in case of a financial crisis.
The Fed changed its rule to classify municipal debt the same as corporate debt to meet the liquidity requirement, but the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency haven't followed suit.
This legislation would force the issue.
"As a former governor, I know firsthand how critical it is for states and municipalities to issue bonds that fund their basic operations, including the construction of schools, roads, and local projects," Warner said in the release. "We must ensure a continued and reliable access to capital markets for our local governments, and this legislation represents a compromise that achieves that while appropriately balancing concerns for the long term stability of our financial system."
A bill that would make similar changes passed out of the House Financial Services Committee in February.