On February 1, the House of Representatives passed bipartisan legislation; H.R. 2209, introduced by Representative Messer (R-Ind.) would require regulators to classify all investment grade municipal securities as High Quality Liquid Assets (HQLA). This legislation would amend the 2014 Liquidity Coverage Ratio rule approved by the FDIC, Federal Reserve and OCC, which excludes municipal securities from classification as HQLA. The legislation was passed by voice under the suspension calendar, which is typically reserved for non-controversial legislation for which there is strong support. In September 2014, the Federal Reserve unanimously adopted new liquidity standards for large banks. Under the standards, banks that meet a specified total asset threshold must maintain designated levels of HQLA, which are assets that are easily convertible to cash. The issue of concern from APGA’s perspective is that the rule did not classify municipal securities as HQLA, which in turn would ultimately reduce the appeal of banks to underwrite municipal securities and increase borrowing costs for public natural gas systems, state and local governments.
On January 29, APGA joined numerous other organizations in a letter sent to the House of Representatives expressing support for this legislation. In the letter, APGA and the other groups communicate that failure to classify municipal securities as HQLA “will increase borrowing costs for state and local governments to finance public infrastructure projects, as banks will likely demand higher interest rates on yields on the purchase of municipal bonds during times of national economic stress, or even forgo the purchase of municipal securities.” The letter also states that classifying investment grade municipal securities as HQLA “will help ensure low-cost infrastructure financing remains available for municipal securities issuers to continue to build the infrastructure for commerce, public safety, job creation and the development of an educated workforce that our communities and national economy rely on.”
A copy of the letter sent by APGA and the other groups is available on the APGA website at
www.apga.org/correspondence. With House passage of this legislation, debate now moves to the Senate with efforts underway to have similar legislation introduced in near future. For questions on this article, please contact Dave Schryver of APGA staff by phone at 202-464-2742 or by email at
dschryver@apga.org.