WASHINGTON – May 5, 2015 – (RealEstateRama) — Congressman Luke Messer (IN-06) and Carolyn Maloney (NY-12) who serve on the House Financial Services Committee introduced legislation last week that would require Federal banking regulators to include municipal bonds under the Liquidity Coverage Ratio (LCR). This change will help encourage financial institutions to continue to invest in local communities following new regulations that threaten to slow or even stop cash flow for crucial infrastructure projects. Here’s how:
In the wake of the 2008 economic downturn, Federal regulators adopted international banking standards that require banks to have enough High-Quality Liquid Assets (HQLAs) to cover their cash outflows for 30 days in case of a future financial meltdown. Unfortunately, under the new banking rules, municipal bonds are not considered liquid assets and therefore cannot be included under the LCR.
This regulatory misstep has discouraged financial institutions from holding municipal debt and many are concerned this regulatory policy will force governments to reduce or even stop projects that are financed with municipal bonds.
“A lot of times it seems like bank regulations have very little impact on our day-to-day lives,” said Congressman Messer. “But, that’s just not the case here. This arbitrary decision by Federal regulators could have a real-world impact on cash-strapped school districts and local governments by raising the cost of critical infrastructure projects. We shouldn’t allow Federal bureaucrats to promote policies that disincentivize investment in our local communities. I’m glad to have worked with Congresswoman Maloney on this common-sense legislation that will encourage growth in our local communities.”
Congresswoman Maloney said of the bill, “States and cities rely on municipal bonds to finance critical infrastructure, build schools, and pave roads. This important legislation ensures that municipal bonds — which are among the safest investments available — are treated fairly by the regulators. We should not be discouraging financial institutions from investing in our communities and this bill will level the playing field for our states and cities.”
For full text of the bill (H.R. 2209) click here.