Treatment of Certain Municipal Obligations

Floor Speech

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Mr. MESSER. Mr. Speaker, I thank the chairman, Mr. Carney, and Mrs. Carolyn B. Maloney of New York for their leadership on this bill.

What would you think if I told you that the Federal Government bureaucracy is favoring foreign bonds and corporate bonds over identically valued U.S. municipal bonds? It wouldn't make any sense.

Our Federal bureaucracy shouldn't create rules that favor loans to foreign countries over loans to our own local governments and schools, yet that is exactly what is happening under our broken Federal regulatory scheme.

Today's bill, H.R. 2209, would correct this problem. I am proud to have coauthored this bipartisan bill with Congresswoman Maloney. I also want to thank my good friends--Mr. Poliquin, Mr. Pearce, the chairman, and others--who helped us in working on this bill. I ask my colleagues for their support.

It is really just common sense. U.S. municipal bonds are among the safest investments in the entire world. According to Municipal Market Analytics, over the last 5 years--a period, by the way, during which State and local governments struggled to recover from the recession-- high-quality State and local government obligation defaults were only four one thousandths of 1 percent. Let me repeat that. The municipal bond default rate was four one thousandths of 1 percent during the recession. That is a pretty safe investment.

Public entities depend on this financing, too. State and local governments, school corporations, and public utility companies across the U.S. sell municipal bonds to finance the infrastructure and services that we all depend on. It is low-interest municipal bonds that finance new schools, hospitals, bridges, and roads, and pay for the repair of outdated and failing infrastructure. The needs are great.

In fact, according to the Society of Civil Engineers, State and local governments need $3.6 trillion to meet their infrastructure needs over the next 5 years. That is what is so disappointing about recent regulatory rules from the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Reserve that will arbitrarily increase the costs for local governments and schools to borrow.

Specifically, as others have described, in 2014, Federal banking regulators issued a rule requiring banks to have enough high-quality liquid assets, HQLAs, to cover their cash outflows for 30 days in case of a future financial meltdown. For the most part, liquidity set-asides protect the consumer, and they make sense.

The problem is, in the same rule, they said that investment-grade U.S. municipal bonds don't count as HQLAs, while recognizing German subsovereign municipal debt and many corporate bonds as high-quality liquid assets that do qualify. That doesn't make any sense at all.

By excluding all American municipal securities from HQLA eligibility, financial institutions are discouraged from holding them. The result is increased interest rates and increased borrowing costs for State and local governments and the taxpayers that pay them.

This has a real impact on families when schools can no longer accommodate enrollment and local communities when bridges crumble or roads fail because repair and new construction simply isn't financially feasible. This is particularly troubling because times are tough and budgets are tight across America.

Although the Federal Reserve continues to review this issue, so far the Fed's response has been partial and inadequate. The OCC and the FDIC have not addressed the issue at all. Meanwhile, our local governments remain strapped for cash and cannot wait for a bureaucratic solution.

Our commonsense bill, H.R. 2209, fixes this arbitrary decision by Federal regulators. The bill directs the FDIC, the Federal Reserve System, and the OCC to classify investment-grade municipal securities as level 2A, high-quality liquid assets.

Put simply, our bill requires the Federal Government to recognize the obvious: America's municipal bonds are some of the safest investments in the world, and we shouldn't have rules that give preferential treatment to corporate bonds or other countries' bonds over our own.

I want to thank Congresswoman Maloney for working with me on this commonsense legislation.

I urge all my colleagues to support this bipartisan bill.

For those who work in the bond world, this bill ensures that a 2A asset is treated as a 2A asset and prevents federal regulators from arbitrarily under-valuing them.

Lastly, let me be clear, this bill doesn't give special treatment to our local governments bonds.

State and local governments remain required to satisfy their debts and live with their bond ratings.

This bill is, however, a comprehensive solution that restores fairness and recognizes investment grade municipal bonds for exactly what they are: safe, reliable investments that allow local governments to serve citizens and their families.

Once again, I want to thank Congresswoman Maloney for working with me on this common sense legislation.

I urge all of my colleagues to support this bipartisan bill.

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