Big banks and government treasurers collected on a big legislative victory Wednesday as federal regulators moved to allow banks to hold more municipal securities.
The bank regulatory agencies issued a rule to count some municipal securities as “high-quality liquid assets,” a designation that will allow big banks to hold city and county bonds without being penalized. Previously, post-crisis liquidity rules made it costly for banks to hold municipal securities, instead steering them toward Treasury securities or other assets.
The change will make it cheaper for local governments to borrow. Municipalities had lobbied hard for the change, which was mandated as part of a broader bipartisan bank regulation overhaul signed by President Trump in May.
The legislative package was geared toward lessening regulations on small and regional banks, rather than Wall Street, allowing centrist Democrats to support it. But the provision relating to the liquidity rule’s treatment of municipal securities applies only to the largest banks, ones like JPMorgan Chase and Citigroup.
Nevertheless, the measure won support from Republicans and Democrats alike.
The liquidity rules mandate that banks maintain certain levels of assets that can easily be exchanged for cash, so that they could weather a storm without defaulting.
The Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency jointly announced the change Wednesday, set to take effect in the coming days.
