Back in September, Fed governor Daniel Tarullo said he expects the central bank to change its stance on munis inclusion as evidence that some state and local debt is frequently traded may be “comparable to that of the very liquid corporate bonds” that qualify under the high-quality liquid assets rule.
Big banks, such as Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC), along with state and local officials and top Congressmen, have been pushing for the changes. Proponents contend that excluding all muni-debt securities from the liquidity rules could push banks to shun the $3.7 trillion market and force local governments to cut back on projects and spending.
According to the Fed, banks now account for 12% of the total outstanding municipal debt market. Banks have held on to munis because the asset class is seen as less risky than corporate debt and competitively priced relative to other bonds.
For more information on the munis market, visit our municipal bonds category.
Max Chen contributed to this article.