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The Fed had excluded debt issued by cities and states when it
approved liquidity rules for large banks in September, part of a
global effort to make banks such as JPMorgan Chase and Citigroup
more resilient in a financial crisis.
Fed officials had at that time said they did not think the rule
would have significant implications for the $3.7 trillion
municipal bond market. The Fed had also said it planned to
propose allowing certain high-liquid municipal securities to
count as a sellable asset at a later date, after further review.
U.S. cities and states have been urging the Fed, the Federal
Deposit Insurance Corporation (FDIC) and the Office of the
Comptroller of the Currency (OCC) to classify muni bonds as
highly liquid if they are investment grade and have demonstrated
reliable liquidity during times of economic stress.
However, the plan under discussion falls short of including all
investment-grade municipal bonds, the Journal said.
The exact criteria for the kind of municipal bonds that would
count under the rule has not been set, but a key focus will be
the ability of a bank to sell the bonds in a fairly short time
frame, the newspaper said.
The other regulators - the OCC and the FDIC, do not plan to
follow the Fed, the newspaper said.
Reuters could not immediately reach the regulators for comment
outside regular U.S. business hours.
The U.S. municipal bond market grew to $3.652 trillion during
the fourth quarter, with banks picking up $41.1 billion, up from
the prior quarter's $34.5 billion, according to data released by
the Fed in March.
(Reporting by Supriya Kurane in Bengaluru; Editing by Anupama
Dwivedi)
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