Classifying municipal securities as HQLA.

• Author: McDonald, Dustin
• Position: Perspectives - High quality liquid assets

Today's government finance officers face challenges like never before in making prudent investments to ensure the long-term sustainability of public infrastructure. One of GFOA's key priorities is securing support from federal policymakers to ensure that these investments can be made at the lowest cost to taxpayers while maintaining the deep and stable funding markets available to sell state and local government securities. As we wrap up the federal legislative year, GFOA would like its many members who participated in the effort to urge members of Congress to support federal legislation to do just that.

In May 2015, the House introduced bipartisan legislation (H.R. 2209) that directs federal regulators to classify all investment-grade, liquid, and readily marketable municipal securities as high quality liquid assets (HQLA). The bill is necessary to amend the 2014 Liquidity Coverage Ratio Rule, which establishes a minimum liquidity requirement for large banking organizations. While the rule identified acceptable investments, which it called HQLA, to meet this requirement --including foreign sovereign debt--it failed to include municipal securities in any of the acceptable investment categories! This means that banks would be deterred from buying municipal...