Federal Regulators Pledge to Modify New Liquidity Rules to Include Municipal Securities

Wednesday, September 3, 2014

This week, the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) voted to approve new liquidity standards on banks. The new rules are a response to the 2008 financial crisis and will require banks with at least $250 billion in total assets to maintain designated levels of high-quality liquid assets, which are assets that can easily be converted to cash.  Since this rule was proposed in November 2013, the GFOA has led efforts to urge federal regulators to classify municipal securities as high-quality liquid assets and voiced concerns that failing to do so would dissuade banks from underwriting government bonds and increase borrowing costs on desperately needed infrastructure projects. The efforts of many GFOA members who contacted federal regulators in the week leading up to the vote to reiterate these concerns won a concession from Federal Reserve to explore modifications to the rule that would allow some muni bonds to qualify. The GFOA is reaching out to regulators to discuss these rule modifications and will update members with new information as it becomes available.