The Honorable Jelena McWilliams
Chair
Federal Deposit Insurance Corporation
550 17th St NW
Washington, DC 20429
The Honorable Joseph M. Otting
Comptroller of the Currency
Office of the Comptroller of the Currency
400 7th Street, SW
Washington, DC 20219
The Honorable Jerome Powell
Chairman
Board of Governors of the Federal Reserve
Constitution Ave NW & 20th St NW
Washington, DC 2055
July 17, 2018
Dear Chair McWilliams, Comptroller Otting, and Chairman Powell:
As you know, recently Congress passed and the President signed into law the “Economic Growth, Regulatory Relief, and Consumer Protection Act” (PL 115-174) (the “Act”). Section 403 of the Act amends the Federal Deposit Insurance Act to require federal banking agencies to amend their Liquidity Coverage Ratio (“LCR”) rules to provide treatment as Level 2B High Quality Liquid Assets (“HQLA”) for certain municipal securities. The law requires the Federal Reserve (the “Fed”), the Federal Deposit Insurance Corporation (“FDIC”), and the Office of the Comptroller of the Currency (“OCC”, together, the “Agencies”) to complete rulemaking on this matter no later than August 22, 2018.
Under the new change in law, municipal securities that are liquid and readily marketable and investment grade will be Level 2B HQLA under the Agencies’ rules. The Government Finance Officers Association1 (GFOA), The National Association of State Treasurers (NAST) 2 , and SIFMA3 write you today to address applying the “liquid and readily marketable” test to municipal securities. We urge the Agencies to make their best efforts to meet the statutory deadline for action on this new provision. We also urge the Agencies in their rulemaking to apply all existing provisions of the LCR Rule to municipal securities in the same manner as to other HQLA.
Background
The Agencies finalized their LCR rules in December 2014. In May 2015, the Fed, acting alone, proposed amendments to its LCR rule to permit certain municipal securities to be treated as Level 2B HQLA. In April 2016 the Fed finalized those amendments. While we appreciate the Fed’s work in attempting to accommodate certain municipal securities as HQLA under previous law, the 2016 rulemaking regarding municipal securities has not been successful for several reasons. First, the fact that the OCC and FDIC have not made corresponding changes to their LCR rules makes the Fed’s amendments much less useful, since most LCR banks are subject to the rules of all three agencies. Most LCR banks appropriately have decided that they will comply with the most restrictive of the three rules, which means the Fed’s action, without corresponding rulemaking by the other two agencies, is if very limited use.
1 The Government Finance Officers Association (GFOA), founded in 1906, represents public finance officials throughout the United States and Canada. The association’s more than 19,800 members are federal, state and local finance officials deeply involved in planning, financing, and implementing thousands of governmental operations in each of their jurisdictions. GFOA’s mission is to advance excellence in state and local government financial management.
2 The National Association of State Treasurers seeks to provide advocacy and support that enables member states to pursue and administer sound financial policies and programs benefiting the citizens of the nation. As part of its mission to be the nation’s leading advocate for responsible state treasury programs and related financial practices and policies, NAST furthers its federal relations through the association’s headquarters in Washington, DC. The organization’s advocacy is guided by resolutions adopted by the membership.
3 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly one million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the US, serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, DC, is the US regional member of the Global Financial Markets Association (GFMA). For more information, visit www.sifma.org.