Help GFOA Urge Federal Policy Makers to Classify Municipal Securities as High Quality Liquid Assets

Wednesday, July 1, 2015

The GFOA unveiled a new federal advocacy resource center designed to engage members in our efforts to see that municipal securities are classified as high quality liquid assets. The need for this advocacy effort emerged last fall, when the Federal Deposit Insurance Corporation, the Federal Reserve System, and the Office of the Comptroller of the Currency approved a rule establishing minimum liquidity requirements for large banking organizations. The new rule was designed to ensure that large banks maintain liquid assets that can easily be converted to cash during times of national economic crisis. The rule identifies high quality liquid assets to meet this requirement but fails to include municipal securities in any of the acceptable investment categories (despite including foreign sovereign debt).

Not classifying municipal securities as high quality liquid assets will increase borrowing costs for many GFOA members financing important infrastructure projects, as banks will likely demand higher interest rates on yields on the purchase of an issuer’s bonds during times of national economic stress, or even forgo the purchase of our securities during these times. The resulting cost impact on GFOA members could be significant, as bank holdings of municipal securities and loans have increased dramatically over the past five years.

GFOA is asking for your help in engaging federal policy makers and requesting that they change this rule through two advocacy efforts – supporting House legislation HR 2209 and submitting comment letters to the Federal Reserve Board. Learn more about these advocacy efforts by visiting GFOA’s new resource center and by contacting GFOA’s Federal Liaison Center.