110 HR 6308 RH: Municipal Bond Fairness
U.S. House of Representatives
2008-06-19
text/xml
EN
Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
1.This Act may be cited as the
Municipal Bond Fairness
Act
.
<enum>I</enum><header>Discriminatory Ratings
Treatment of State and Municipal Securities</header>
<section id="HFDE33F7E8385406982826532C355694E"><enum>101.</enum><header>Preservation of
authority to prevent discrimination</header><text display-inline="no-display-inline">Section 15E of the Securities Exchange Act
of 1934 (<external-xref legal-doc="usc" parsable-cite="usc/15/78o-7">15 U.S.C. 78o–7</external-xref>) is amended—</text>
<paragraph id="HEED000D9A2614741A4F2034D59FA009E"><enum>(1)</enum><text>by redesignating
subsection (p) as subsection (q); and</text>
</paragraph><paragraph id="HDE4E115DC1314C2EAF7B113931A4704B"><enum>(2)</enum><text>by inserting after
subsection (o) the following new subsection:</text>
<quoted-block changed="added" committee-id="HBA00" display-inline="no-display-inline" id="H863FE516543F46BCB9F36494EEA6E1C7" reported-display-style="italic" style="OLC">
<subsection id="H53DFF153B7FF48C699D5DE000013D349"><enum>(p)</enum><header>Ratings clarity and
consistency</header>
<paragraph id="HD6E05E7C6B9F413F8043022D7199DE00"><enum>(1)</enum><header>Commission
obligation</header><text display-inline="yes-display-inline">Subject to
<internal-xref idref="HFD0361705C1848BAA387DCFFF13410FC" legis-path="(p)(2)">paragraphs (2)</internal-xref> and
<internal-xref idref="H97061F4AA4BE4825005E003BEF5600EB" legis-path="(p)(3)">(3)</internal-xref>, 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—</text>
<subparagraph id="H40C28FA3D32C4DE091A8F4FC99231D45"><enum>(A)</enum><text>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;</text>
</subparagraph><subparagraph id="H32B4F5CA859A41058B6977902CF003E"><enum>(B)</enum><text>to define clearly any
rating symbol used by that organization; and</text>
</subparagraph><subparagraph id="H73F1D3EA7C304E9A9B29F745AFF8B48D"><enum>(C)</enum><text>to apply such rating
symbol in a consistent manner for all types of securities and money market
instruments.</text>
</subparagraph></paragraph><paragraph id="HFD0361705C1848BAA387DCFFF13410FC"><enum>(2)</enum><header>Additional Credit
Factors</header><text display-inline="yes-display-inline">Nothing in
<internal-xref idref="H40C28FA3D32C4DE091A8F4FC99231D45" legis-path="(p)(1)(A)">paragraph (1)(A)</internal-xref>,
<internal-xref idref="H32B4F5CA859A41058B6977902CF003E" legis-path="(p)(1)(B)">(B)</internal-xref>, or
<internal-xref idref="H73F1D3EA7C304E9A9B29F745AFF8B48D" legis-path="(p)(1)(C)">(C)</internal-xref>—</text>
<subparagraph id="H717C622FBBCD43C1A95EA82EDC67E342"><enum>(A)</enum><text>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</text>
</subparagraph><subparagraph id="H4F12A30F8070475AAF9E009760FC4200"><enum>(B)</enum><text>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.</text>
</subparagraph></paragraph><paragraph id="H97061F4AA4BE4825005E003BEF5600EB"><enum>(3)</enum><header>Complementary
ratings</header><text display-inline="yes-display-inline">The Commission shall
not impose any requirement under
<internal-xref idref="HD6E05E7C6B9F413F8043022D7199DE00" legis-path="(a)(1)">paragraph (1)</internal-xref> that prevents nationally
recognized statistical rating organizations from establishing ratings that are
complementary to the ratings described in
<internal-xref idref="H40C28FA3D32C4DE091A8F4FC99231D45" legis-path="(a)(1)(A)">paragraph (1)(A)</internal-xref> and that are created to
measure a discrete aspect of the security’s or instrument’s risk.</text>
</paragraph><paragraph id="H2A44530BD8E643D3861C7618FBBD6823"><enum>(4)</enum><header>Review</header>
<subparagraph id="H788C09FCACB04E8B8104D500005589E7"><enum>(A)</enum><header>Performance
measures</header><text>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.</text>
</subparagraph><subparagraph id="HD0183D41BA664108A72FA376008FAABE"><enum>(B)</enum><header>Consideration of
evidence</header><text display-inline="yes-display-inline">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.</text>
</subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></section><section display-inline="no-display-inline" id="H896F771F402448B7A0D18300C457CC85" section-type="subsequent-section"><enum>102.</enum><header>General
Accountability Office study of credit ratings</header>
<subsection id="H5FE8C7673E3C459CBDDF87A1EFD235C4"><enum>(a)</enum><header>Study
required</header><text display-inline="yes-display-inline">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—</text>
<paragraph id="HCB66CB456D0041C89F4247D39D44BCC9"><enum>(1)</enum><text>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;</text>
</paragraph><paragraph id="H93E4285EBE844BEB9F33FB25A7B655AA"><enum>(2)</enum><text>if there are such
differences, what are the causes of such differences and how can they be
alleviated;</text>
</paragraph><paragraph id="HFEB06C306D8E44CF9F14C59BBFA3DF91"><enum>(3)</enum><text>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;</text>
</paragraph><paragraph id="H83407B2644F4412C9605DA5271D391F0"><enum>(4)</enum><text display-inline="yes-display-inline">the types of financing arrangement used by
municipal issuers;</text>
</paragraph><paragraph id="HBFB88BB3331543678F5C2EBD9722CB66"><enum>(5)</enum><text>the differing legal and
regulatory regimes governing disclosures for corporate bonds and municipal
bonds;</text>
</paragraph><paragraph id="H13ECA17EEC884FB9B13268AACE65ACF"><enum>(6)</enum><text>the extent to which
retail investors could be disadvantaged by a single ratings scale; and</text>
</paragraph><paragraph id="H10531200ABAC4D3EB74904BEF95C23F"><enum>(7)</enum><text display-inline="yes-display-inline">practices, policies, and methodologies by
the nationally recognized statistical rating organizations with respect to
rating municipal bonds.</text>
</paragraph></subsection><subsection id="H9158B6F29A5B43EABE7EDA029F256581"><enum>(b)</enum><header>Report
required</header><text display-inline="yes-display-inline">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
<internal-xref idref="H5FE8C7673E3C459CBDDF87A1EFD235C4" legis-path="1.(a)">subsection (a)</internal-xref> 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).</text>
</subsection></section><section display-inline="no-display-inline" id="HC18DD64240CB414000080315CA76FAA4" section-type="subsequent-section"><enum>103.</enum><header>Implementation</header><text display-inline="no-display-inline">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.</text>
</section><enum>II</enum><header>Review of Municipal Bond
Insurance Industry</header>
<section display-inline="no-display-inline" id="HC48423FB65DC42589FA422AC995737F0" section-type="subsequent-section"><enum>201.</enum><header>Authority of
Secretary</header>
<subsection id="H3F1465FAD4D040DBB89CF8124F211E3B"><enum>(a)</enum><header>Authority To receive
and collect information</header><text display-inline="yes-display-inline">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—</text>
<paragraph id="H5A2E209F066444F3BE63A0A0016D9200"><enum>(1)</enum><text>financial safety and
soundness of such entities;</text>
</paragraph><paragraph id="HD78BD6953CC9416CB438401158F3BDCE"><enum>(2)</enum><text>concentration of
insurance liabilities of such entities;</text>
</paragraph><paragraph id="HC7427E97DBA044B9969D9530C2E977DB"><enum>(3)</enum><text>performance of such
entities under various scenarios of macro- and micro-economic stress;</text>
</paragraph><paragraph id="H57ACDCB9FBFF4FE18D9B9278BA02FEF6"><enum>(4)</enum><text>underwriting standards
for such entities; and</text>
</paragraph><paragraph id="H6DFD3BB75AC54A1CB255E1248047EFE0"><enum>(5)</enum><text>risk management of such
entities.</text>
</paragraph></subsection><subsection id="HC8F438541D5349CFA9E7CFE04BE34CC0"><enum>(b)</enum><header>Limitations</header><text display-inline="yes-display-inline">With respect to the authority under
subsection (a)—</text>
<paragraph id="H6B478C9A3B07434CA7ACCAE316A8FE26"><enum>(1)</enum><text display-inline="yes-display-inline">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;</text>
</paragraph><paragraph id="H9B73C541347E4FB586CE44208EAD49C8"><enum>(2)</enum><text display-inline="yes-display-inline">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;</text>
</paragraph><paragraph id="H593CCD18B1364D2C8D5781DC91002722"><enum>(3)</enum><text>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;</text>
</paragraph><paragraph id="H14372912B89C4F6584D40015545233E1"><enum>(4)</enum><text display-inline="yes-display-inline">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;</text>
</paragraph><paragraph id="HCF86B774517F4F10B9D4EC25E5786942"><enum>(5)</enum><text>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</text>
</paragraph><paragraph id="H856E436BE05F450E99B7126189EEB9A7"><enum>(6)</enum><text display-inline="yes-display-inline">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 <external-xref legal-doc="usc" parsable-cite="usc/5/552">section 552(b)(4)</external-xref> of title 5, United
States Code.</text>
</paragraph></subsection></section><section id="H4CDA907A066C4BA6BDA60017647BB9F1"><enum>202.</enum><header>Reports to
Congress</header><text display-inline="no-display-inline">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.</text>
</section><section id="H33171378794B40B7AE5BB69D3769C649"><enum>203.</enum><header>Retention of existing
regulatory authority</header><text display-inline="no-display-inline">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.</text>
</section><section id="H38B0D9F4552F4409B1D1048132CDC05F"><enum>204.</enum><header>Definitions</header><text display-inline="no-display-inline">For purposes of this title, the following
definitions shall apply:</text>
<paragraph id="H1682645593424DD2A1F77B6D6D002C20"><enum>(1)</enum><header>Municipal
obligation</header><text display-inline="yes-display-inline">The term
<term>municipal obligation</term> 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.</text>
</paragraph><paragraph id="H0555159E08324CBF8D08DD22434DD6F3"><enum>(2)</enum><header>Political
subdivision</header><text>The term <term>political subdivision</term> 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.</text>
</paragraph><paragraph id="H3D10E38A84B441328835FFABE6B0009"><enum>(3)</enum><header>Secretary</header><text>The
term <term>Secretary</term> means the Secretary of the Treasury.</text>
</paragraph><paragraph id="H31F3DB8ABA494D8A9E453DE1E529A7E3"><enum>(4)</enum><header>State</header><text>The
term <term>State</term> 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.</text>
</paragraph></section><section id="H5A7868FE37354322BF05E0FF032B6FB2"><enum>205.</enum><header>Authorization of
appropriations</header><text display-inline="no-display-inline">There are
authorized to be appropriated to the Secretary for carrying out this title such
sums as may be necessary for each fiscal year.</text>
</section>
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