SIFMA Recommends Changes to Proposal to Improve Capital Treatment of Munis

SIFMA Managing Director Michael Decker recommended changes to a proposed rule that would treat certain U.S. municipal securities as High-Quality Liquid Assets ("HQLAs") under the Federal Reserve Liquidity Coverage Ratio rule ("LCR"). The recommendations were part of SIFMA's comments submitted to the Board of Governors of the Federal Reserve System.

SIFMA recommended five key changes to the rule proposal: (i) treating municipal revenue bonds as eligible HQLAs; (ii) treating insured municipal securities as eligible HQLAs; (iii) either eliminating the 25-percent-of-each-CUSIP restriction or using all issuer obligations payable from substantially the same source of funds as the relevant denominator; (iv) eliminating the percentage of daily-trading volume restriction; and (v) eliminating the five-percent-of-total-HQLA limit.

SIFMA noted that the proposed amendment to the LCR was not proposed jointly by the OCC and the FDIC, and expressed concern that this fact reflected a "lack of unified regulatory action."

See: SIFMA's Comment Letter on the Federal Reserve's Proposal.Related news: FDIC to Meet to Discuss Regulatory Capital Rules, Liquidity Coverage Ratio and Proposed Revisions to Definition of Qualifying Master Netting Agreement (January 15, 2015); SIFMA Submits Comment Letter to Federal Banking Agencies on Basel III LCR Rule Regarding Treatment of Municipal Securities (October 15, 2014).