[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6308 Reported in House (RH)]






                                                 Union Calendar No. 536
110th CONGRESS
  2d Session
                                H. R. 6308

                          [Report No. 110-835]

  To ensure uniform and accurate credit rating of municipal bonds and 
     provide for a review of the municipal bond insurance industry.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 19, 2008

     Mr. Frank of Massachusetts (for himself, Mr. Capuano, and Mr. 
  Kanjorski) introduced the following bill; which was referred to the 
                    Committee on Financial Services

                           September 9, 2008

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]
 [For text of introduced bill, see copy of bill as introduced on June 
                               19, 2008]

_______________________________________________________________________

                                 A BILL


 
  To ensure uniform and accurate credit rating of municipal bonds and 
     provide for a review of the municipal bond insurance industry.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Municipal Bond Fairness Act''.

   TITLE I--DISCRIMINATORY RATINGS TREATMENT OF STATE AND MUNICIPAL 
                               SECURITIES

SEC. 101. PRESERVATION OF AUTHORITY TO PREVENT DISCRIMINATION.

    Section 15E of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
7) is amended--
            (1) by redesignating subsection (p) as subsection (q); and
            (2) by inserting after subsection (o) the following new 
        subsection:
    ``(p) Ratings Clarity and Consistency.--
            ``(1) Commission obligation.--Subject to paragraphs (2) and 
        (3), the Commission shall require each nationally recognized 
        statistical rating organization that is registered under this 
        section to establish, maintain, and enforce written policies 
        and procedures reasonably designed--
                    ``(A) to establish and maintain credit ratings with 
                respect to securities and money market instruments 
                designed to assess the risk that investors in 
                securities and money market instruments may not receive 
                payment in accordance with the terms of issuance of 
                such securities and instruments;
                    ``(B) to define clearly any rating symbol used by 
                that organization; and
                    ``(C) to apply such rating symbol in a consistent 
                manner for all types of securities and money market 
                instruments.
            ``(2) Additional credit factors.--Nothing in paragraph 
        (1)(A), (B), or (C)--
                    ``(A) prohibits a nationally recognized statistical 
                rating organization from using additional credit 
                factors that are documented and disclosed by the 
                organization and that have a demonstrated impact on the 
                risk an investor in a security or money market 
                instrument will not receive repayment in accordance 
                with the terms of issuance; or
                    ``(B) prohibits a nationally recognized statistical 
                rating organization from considering credit factors 
                that are unique to municipal securities that are not 
                backed by the issuer's full faith and credit in its 
                assessment of the risk an investor in a security or 
                money market instrument will not receive repayment in 
                accordance with the terms of issuance.
            ``(3) Complementary ratings.--The Commission shall not 
        impose any requirement under paragraph (1) that prevents 
        nationally recognized statistical rating organizations from 
        establishing ratings that are complementary to the ratings 
        described in paragraph (1)(A) and that are created to measure a 
        discrete aspect of the security's or instrument's risk.
            ``(4) Review.--
                    ``(A) Performance measures.--The Commission shall, 
                by rule, establish performance measures that the 
                Commission shall consider when deciding whether to 
                initiate a review concerning whether a nationally 
                recognized statistical rating organization has failed 
                to adhere to such organization's stated procedures and 
                methodologies for issuing ratings on securities or 
                money market instruments.
                    ``(B) Consideration of evidence.--Performance 
                measures the Commission may consider in initiating a 
                review of an organization's ratings in each of the 
                categories described in clauses (i) through (v) of 
                section 3(a)(62)(B) during an appropriate interval (as 
                determined by the Commission) include the transition 
                and default rates of its in discrete asset classes.''.

SEC. 102. GENERAL ACCOUNTABILITY OFFICE STUDY OF CREDIT RATINGS.

    (a) Study Required.--The Comptroller General shall conduct a study 
of the treatment of different classes of bonds (municipal versus 
corporate) by the nationally recognized statistical rating 
organizations. Such study shall examine--
            (1) whether there are fundamental differences in the 
        treatment of different classes of bonds by such rating 
        organizations that cause some classes of bonds to suffer from 
        undue discrimination;
            (2) if there are such differences, what are the causes of 
        such differences and how can they be alleviated;
            (3) whether there are factors other than risk of loss that 
        are appropriate for the credit ratings agencies to consider 
        when rating bonds, and do those factors vary across different 
        sectors;
            (4) the types of financing arrangement used by municipal 
        issuers;
            (5) the differing legal and regulatory regimes governing 
        disclosures for corporate bonds and municipal bonds;
            (6) the extent to which retail investors could be 
        disadvantaged by a single ratings scale; and
            (7) practices, policies, and methodologies by the 
        nationally recognized statistical rating organizations with 
        respect to rating municipal bonds.
    (b) Report Required.--Within 6 months after the date of enactment 
of this Act, the Comptroller General shall submit a report on the 
results of the study required by subsection (a) to the Committee on 
Financial Services of the House of Representatives and the Committee on 
Banking, Housing, and Urban Development of the Senate. Such report 
shall include an assessment of each of the issues and subjects 
described in paragraphs (1) through (7) of subsection (a).

SEC. 103. IMPLEMENTATION.

    The Securities and Exchange Commission shall prescribe rules to 
implement the amendments made by section 101 within 270 days after the 
date of enactment of this Act.

         TITLE II--REVIEW OF MUNICIPAL BOND INSURANCE INDUSTRY

SEC. 201. AUTHORITY OF SECRETARY.

    (a) Authority To Receive and Collect Information.--Subject to 
subsection (b), the Secretary of the Treasury shall have the authority 
to receive and collect (directly from the States and other sources), 
and to analyze and disseminate, data and information, and to issue 
reports, regarding entities that insure or guarantee the payment of any 
portion of the principal and interest of any municipal obligation, 
including information, data and material regarding--
            (1) financial safety and soundness of such entities;
            (2) concentration of insurance liabilities of such 
        entities;
            (3) performance of such entities under various scenarios of 
        macro- and micro-economic stress;
            (4) underwriting standards for such entities; and
            (5) risk management of such entities.
    (b) Limitations.--With respect to the authority under subsection 
(a)--
            (1) the submission of any non-publicly available data and 
        information to the Secretary shall be voluntary and such 
        submission shall not constitute a waiver of, or otherwise 
        affect, any privilege or confidentiality protection to which 
        the data or information is otherwise subject;
            (2) to the extent that any such data and information has 
        already been received or collected by, or can efficiently be 
        received or collected by, the States (including the insurance 
        commissioners of the States), the National Association of 
        Insurance Commissioners, or any other appropriate source, the 
        Secretary may enter into an information-sharing agreement with 
        such source to provide for the receipt of such data by the 
        Secretary;
            (3) any requirement under Federal or State law to the 
        extent otherwise applicable, or any requirement pursuant to a 
        written agreement in effect between the original source of any 
        non-publicly available data or information and the source of 
        such data or information to the Secretary, regarding the 
        privacy or confidentiality of any data or information in the 
        possession of the source to the Secretary, and any privilege 
        arising under Federal or State law (including the rules of any 
        Federal or State court) with respect to such data or 
        information, shall continue to apply to such data or 
        information after the data or information has been provided 
        pursuant to this subsection to the Secretary;
            (4) the Secretary shall treat as confidential and 
        privileged any data or information obtained from any source 
        that is entitled to confidential treatment under applicable 
        State or Federal law or regulations, or under any agreement to 
        which the source is a party and shall take all reasonable steps 
        to oppose any effort to secure disclosure of the data or 
        information by the Secretary;
            (5) the Secretary may not in any case disclose to any party 
        any personally identifiable information received or collected 
        by the Secretary pursuant to this subsection; and
            (6) any non-publicly available data and information 
        received or collected by the Secretary pursuant to this 
        subsection shall be considered trade secrets and commercial or 
        financial information that is privileged and confidential 
        pursuant to section 552(b)(4) of title 5, United States Code.

SEC. 202. REPORTS TO CONGRESS.

    The Secretary shall submit a report annually to the Committee on 
Financial Services of the House of Representatives and the Committee on 
Banking, Housing, and Urban Affairs of the Senate on the financial 
state of the industry for insurance and guarantee of municipal bonds, 
meaningful trends in such industry, and the potential impacts on the 
overall financial system in the United States that entities providing 
such insurance and guarantees could have under various scenarios of 
macro- and micro-economic stress.

SEC. 203. RETENTION OF EXISTING REGULATORY AUTHORITY.

    This title may not be construed to establish any supervisory or 
regulatory authority of the Secretary over any entity that insures or 
guarantees the payment of any portion of the principal and interest of 
any municipal obligation.

SEC. 204. DEFINITIONS.

    For purposes of this title, the following definitions shall apply:
            (1) Municipal obligation.--The term ``municipal 
        obligation'' means any bond, note, security, or other debt 
        obligation issued by any State, any political subdivision of a 
        State, one or more political subdivisions of a State, or a 
        State and one or more of its political subdivisions, by any 
        agency, department, office, authority, or other instrumentality 
        of a State, any political subdivision of a State, one or more 
        political subdivisions of a State, or a State and one or more 
        of its political subdivisions, or by any other entity eligible 
        to issue bonds the interest on which is excludable from gross 
        income under section 103 of the Internal Revenue Code of 1986.
            (2) Political subdivision.--The term ``political 
        subdivision'' includes any city, county, town, township, 
        parish, village, or other general purpose political subdivision 
        of a State and any school, utility, fire, or tax district, or 
        other special purpose political subdivision of a State.
            (3) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
            (4) State.--The term ``State'' means the States of the 
        United States, the District of Columbia, the Commonwealth of 
        Puerto Rico, the Commonwealth of the Northern Mariana Islands, 
        Guam, the Virgin Islands, American Samoa, and any other 
        territory or possession of the United States.

SEC. 205. AUTHORIZATION OF APPROPRIATIONS.

    There are authorized to be appropriated to the Secretary for 
carrying out this title such sums as may be necessary for each fiscal 
year.
                                                 Union Calendar No. 536

110th CONGRESS

  2d Session

                               H. R. 6308

                          [Report No. 110-835]

_______________________________________________________________________

                                 A BILL

  To ensure uniform and accurate credit rating of municipal bonds and 
     provide for a review of the municipal bond insurance industry.

_______________________________________________________________________

                           September 9, 2008

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed