SIFMA Submits Comment Letter to Federal Banking Agencies on Basel III LCR Rule Regarding Treatment of Municipal Securities

SIFMA submitted a letter to the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, "Agencies") regarding the treatment of municipal securities as High-Quality Liquid Assets ("HQLA") under the Basel III Liquidity Coverage Ratio Rule ("LCR Rule").

According to SIFMA, many investment-grade municipal securities exhibit all of the key characteristics of HQLAs specified in the LCR Rule and retain these characteristics during times of market stress.

SIFMA recommended that the Agencies consider a rule amendment to provide that the investment-grade municipal securities of issuers and obligors with at least $100 million of marketable debt outstanding at the time of purchase will qualify as Level 2A liquid assets. Additionally, SIFMA suggested that the LCR Rule impose a composition cap of 10 percent of an institution's total HQLA on municipal securities.

See: Comment Letter.Related news: Final Liquidity Coverage Ratio Regulations (Fed. Reg.) (October 10, 2014); Senator Schumer Urges Regulators to Revise the Liquidity Coverage Ratio Rule to Include Municipals (with Lofchie Comment) (September 17, 2014); Banking Agencies Issue Final Liquidity Coverage Ratio Regulations (September 3, 2014); Banking Agencies Announce Meetings to Consider Rulemakings on Margin and Capital Requirements and Liquidity Coverage Ratio (August 28, 2014); SIFMA and Industry Associations Submit Comment Letters to U.S. Regulators on Liquidity Coverage Ratio (February 3, 2014); OCC Publishes Liquidity Coverage Ratio Proposed Banking Regulations (Fed. Reg. Version) (December 2, 2013); Liquidity Coverage Ratio Proposed Banking Regulations (Pre-Fed. Reg. Version) (October 24, 2013).