Fed Proposes ABA-Advocated Tweak to Liquidity Rule

The Federal Reserve today proposed a rule that would count certain municipal bonds as high-quality liquid assets under the Liquidity Coverage Ratio — a measure ABA has advocated for since the regulatory agencies first published the liquidity standards.

The proposed rule would allow investment-grade, general obligation state and municipal bonds to count as HQLA up to certain levels as long as they meet the same liquidity criteria applying to corporate debt securities.

Due to the role banks play as investors in municipal markets, the proposed expansion of the HQLA definition is expected to be beneficial for all banks — not just those covered by the LCR. Comments are due by July 24. For more information, contact ABA’s Alison Touhey.