Federal Reserve Vote on Status of Municipal Bonds Is a Blow to Cities

Washington, D.C. - Following yesterday's vote by the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) to approve new liquidity standards on banks, National League of Cities CEO and Executive Director Clarence E. Anthony issued this statement:

"We appreciate efforts by the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of Currency (OCC) to strengthen the banking system by imposing credit and liquidity standards for banks' capital requirements. Unfortunately, while the rules as approved do not classify municipal securities as High Quality Liquid Assets (HQLA), it is encouraging to hear that Federal Reserve Governors and staff are committed to modifying the rule to allow certain muni securities to qualify.

"Cities remain concerned that unless changed, the new rules will reduce the appeal of municipal securities for banks to underwrite them, thus increasing borrowing costs for state and local governments for desperately needed infrastructure projects. The cost impacts on governments could be significant, as bank holdings of municipal securities and loans have increased by 86 percent since 2009. We hope that regulators will work with us to address these concerns as they explore improvements to the new rules."

The National League of Cities (NLC) is dedicated to helping city leaders build better communities. NLC is a resource and advocate for 19,000 cities, towns and villages, representing more than 218 million Americans.