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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.