A majority of the nation’s state treasurers are expressing their concerns about an imminent vote by the Board of Governors of the Federal Reserve System, the FDIC and the OCC that treasurers believe will negatively impact the finances of state governments across the country.
The regulators are scheduled to vote tomorrow (Wednesday, Sept. 3) on the liquidity coverage ratio (LCR) final rule. Recent news reports indicate that federal regulators may vote to exclude municipal securities from the definition of “high quality liquid assets.” The effect of this decision would directly reduce demand from large banks for investing in state and local communities, according to the treasurers.
“As stewards of our states’ coffers and protectors of our states’ financial resources, state treasurers were surprised to learn that federal regulators quietly posted their intent before the Labor Day Holiday to vote on significant and potentially very harmful rules,” noted the treasurers, in a written opinion.
These rules — termed the Basel III Liquidity Coverage Rule – have the potential to increase taxpayer costs, reduce public infrastructure and increase costs to state and local governments and their taxpayers. If municipal securities are excluded from the definition of high quality liquid assets, federal regulators will directly reduce demand from large banks from investing in state and local communities, essentially increasing the cost for infrastructure investment at a time when our country is struggling to build bridges, roads and schools.
The treasurers note that a more reasonable approach would be for the rule to identify quantitative liquidity standards or characteristics that should be met for a particular security to be defined as a high quality liquid asset.