FRB Proposes Amendments to LCR Expanding HQLA to Include State and Municipal Obligations
Commentary by Steven Lofchie
The Board of Governors of the Federal Reserve System ("FRB") released a proposal to add certain general obligation state and municipal bonds to the range of assets that qualify as high-quality liquid assets ("HQLA").
The proposed rule would treat investment-grade general obligation U.S. state and municipal bonds as HQLA up to certain levels if they met the same liquidity criteria that apply currently to corporate debt securities. The FRB stated that limits on the amount of a qualifying state or municipality's bonds are based on the specific liquidity characteristics of those bonds.
Commentary
From a policy standpoint, the interesting question is whether the capital rules treat corporate and municipal debt equally or favor either private or governmental lending.