Legislation to Designate Municipal Securities as High-Quality Liquid Assets Becomes Law
Section: Washington Update

Legislation that would classify all investment grade municipal securities as high-quality liquid assets (HQLA) was included in a large banking reform bill entitled The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), and it was signed into law on May 24.   

HQLAs are defined as assets that can be easily and quickly converted to cash with little or no loss of value during a period of liquidity stress. The legislation would amend a 2014 liquidity coverage ratio rule which established a minimum liquidity requirement for large banking organizations and which identified acceptable investments - deemed HQLA - to meet this requirement. The rule failed to include municipal securities in any of the acceptable investment categories.  
Many believe the failure to qualify municipal bonds as HQLAs would reduce the appeal of municipal securities for banks to underwrite them, which in turn could increase borrowing costs for state and local governments to finance needed infrastructure projects.
Section of 403 of S. 2155 will reclassify municipal bonds as high-quality liquid assets to encourage banks to hold those assets, which will help ensure low-cost infrastructure financing remains available for state and local governments.