[Congressional Record Volume 162, Number 18 (Monday, February 1, 2016)]
[House]
[Pages H384-H387]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
TREATMENT OF CERTAIN MUNICIPAL OBLIGATIONS
Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 2209) to require the appropriate Federal banking agencies to
treat certain municipal obligations as level 2A liquid assets, and for
other purposes.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 2209
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. TREATMENT OF CERTAIN MUNICIPAL OBLIGATIONS.
(a) In General.--Section 18 of the Federal Deposit
Insurance Act (12 U.S.C. 1828) is amended--
(1) by moving subsection (z) so that it appears after
subsection (y); and
(2) by adding at the end the following:
``(aa) Treatment of Certain Municipal Obligations.--
``(1) In general.--For purposes of the final rule titled
`Liquidity Coverage Ratio: Liquidity Risk Measurement
Standards; Final Rule' (79 Fed. Reg. 61439; published October
10, 2014) (the `Final Rule') and any other regulation which
incorporates a definition of the term `high-quality liquid
asset', the appropriate Federal banking agencies shall treat
a municipal obligation that is both liquid and readily
marketable (as defined in the Final Rule) and investment
grade as of the calculation date as a high-quality liquid
asset that is a level 2A liquid asset.
``(2) Definitions.--For purposes of this subsection:
``(A) Investment grade.--With respect to an obligation, the
term `investment grade' has the meaning given that term under
part 1 of title 12, Code of Federal Regulations.
``(B) Municipal obligation.--The term `municipal
obligation' means an obligation of a State or any political
subdivision thereof, or any agency or instrumentality of a
State or any political subdivision thereof.''.
(b) Amendment to Liquidity Coverage Ratio Regulations.--Not
later than the end of the 3-month period beginning on the
date of the enactment of this Act, the Federal Deposit
Insurance Corporation, the Board of Governors of the Federal
Reserve System, and the Comptroller of the Currency shall
amend the final rule titled ``Liquidity Coverage Ratio:
Liquidity Risk Measurement Standards; Final Rule'' (79 Fed.
Reg. 61439; published October 10, 2014) to implement the
amendments made by this Act.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New
Jersey (Mr. Garrett) and the gentleman from Delaware (Mr. Carney) each
will control 20 minutes.
The Chair recognizes the gentleman from New Jersey.
General Leave
Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members
have 5 legislative days to revise and extend their remarks and include
any extraneous material on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from New Jersey?
There was no objection.
Mr. GARRETT. Mr. Speaker, I yield myself such time as I may consume.
I rise in support of H.R. 2209. I will begin by thanking the
gentleman from Indiana (Mr. Messer) for all of his hard work on this
legislation and his leadership as well, with pulling it through and
getting it done right here at the beginning of this legislative year,
and being a leader on this bill as well.
On the other side of the aisle, I thank the gentlewoman from New York
(Mrs. Carolyn B. Maloney) for working together with Mr. Messer in a
very bipartisan manner, which, as we have noted, has been on each and
every one of the bills that we have presented today in that manner.
Their efforts culminated in the committee, favorably reporting this
bill by a vote of 56 to 1. So, as I have said to Mr. Poliquin before,
you have only one Member to go to get unanimous consent going forward.
Mr. Speaker, given the problems posed by insufficient liquidity
during the past financial crisis, Federal regulators issued a final
rule back in 2014 to implement something called liquidity coverage
ratio, or LCR. That was being done consistent with something called the
Basel Committee on Banking Supervision's standards.
The LCR was established on the premise that banks should have enough
cash or assets that would be liquid enough when they needed them--and
that would be defined as high-quality liquid assets, or HQLAs--and that
we would have to have them on hand for 30 days if their usual sources
of short-term funding would simply disappear.
It goes without saying, when you think about this, that anytime that
the government steps in, or anytime you have a government agency
favoring this type of asset over this type of asset through some sort
of regulation in which they did it, you are going to end up with what?
You are going to end up with basically unintended and undesirable
consequences. That is what has happened here.
Not surprisingly, critics of the LCR have complained that the stock
of HQLAs is defined way too narrowly, which could adversely impact the
asset classes that we are talking about.
So investment-grade municipal securities, on the other hand, if you
look at them closely--more than we could do right here on the floor
right now--they basically share the same liquidity characteristics of
other HQLAs. And that is what Mr. Messer basically is trying to address
with this great piece of legislation.
Other HQLAs, such as corporate bonds and equity securities, have the
basic same characteristic here as far as liquidity goes. Yet, the
prudential regulators, what do they do? They put them in one pile and
excluded them from the final LCR.
While the Federal Reserve has acknowledged this problem and they
acknowledge the fault in excluding municipal securities from this
definition of HQLAs, the Federal Reserve's rule would only apply to the
bank holding company's municipal securities and not the national banks,
where more of these municipal securities are held.
Paul Kupiec, who is over at the American Enterprise Institute, in
testimony before our committee back in October of last year on the
bill, said it ``is appropriate and consistent with the public interest.
There is no reason why high quality liquid bonds issued by the U.S.
States and municipalities should receive a lower standing than foreign
[[Page H385]]
sovereign debt with equivalent (or even lesser) credit quality and
market liquidity.''
{time} 1600
Think about that for a minute. We are basically, under the current
situation, treating our municipalities and U.S. securities at a lower
standard than foreign such securities, and we know how they have
prevailed in the last year or so.
With that in mind, I ask my colleagues to join me in supporting H.R.
2209, and the hard work of Mr. Messer, as well, in this legislation.
Mr. Speaker, I reserve the balance of my time.
Mr. CARNEY. Mr. Speaker, I yield 4 minutes to the gentlewoman from
New York (Mrs. Carolyn B. Maloney).
Mrs. CAROLYN B. MALONEY of New York. I thank the gentleman for
yielding and for his leadership.
Mr. Speaker, I rise in strong support today for H.R. 2209. In sum,
this bill levels the playing field for cities and States, saves cities
and States hundreds of millions of dollars, and does it in a way that
maintains the safety and soundness of our banking system.
I would first like to thank the gentleman from Indiana (Mr. Messer),
my friend, for his leadership on this issue. It has been a pleasure to
work with him.
When we introduced this bill, we worked hard to have balanced,
bipartisan support and to have broad support on both sides of the
aisle. We introduced it with a coalition of five Republicans and five
Democrats. On the Democratic side, we were joined by Mr. Capuano, Mr.
Cleaver, Ms. Moore, and Ms. Sewell of Alabama. From the Republican
side, we had Mr. King of New York, Mr. Neugebauer, Mr. Stivers, and Mr.
Hultgren.
This was truly a very strong, bipartisan bill. I would like to thank
all of our colleagues who joined with us. It passed out of the
Committee on Financial Services by a strong vote of 56-1, which shows
that we had overwhelming bipartisan support.
The purpose of this bill is to level the playing field for cities and
States by requiring the banking regulators to treat certain municipal
bonds as liquid assets, just like corporate bonds, stocks, and other
assets.
As a former member of the City Council of New York, I know firsthand
the importance of municipal bonds. They allow our States and cities to
finance infrastructure, build schools, and pave roads. We have
multimillions in municipal bonds in New York that is building the
Second Avenue subway, revamping our water system, and helping in so
many ways.
Unfortunately, in the banking regulators' liquidity rule, which
requires banks to hold a minimum amount of liquid assets, they chose to
allow corporate bonds to qualify as liquid assets but completely
excluded municipal bonds, even municipal bonds that are just as liquid
as corporate bonds. Even worse, they treat foreign securities
differently than U.S. securities, municipal bonds.
This absolutely makes no sense. It effectively discriminates against
municipal bonds. A municipal bond that is just as liquid as the most
liquid corporate bond would not be counted as a liquid asset under the
rule just because it was issued by a city or State rather than a
corporate entity. This is not fair.
The Fed has already recognized this error. It is already amending its
rule to allow certain municipal bonds to count as liquid assets. They
should be praised for taking a second look at the data and recognizing
that some municipal bonds are, in fact, highly liquid. But the OCC,
which regulates national banks, is still refusing to amend its rule and
insists on favoring corporations over cities and States. Mr. Messer and
I introduced this bill because this kind of arbitrary discrimination
against cities and States cannot be allowed to continue.
A recent analysis by the investment bank Piper Jaffray estimated that
our bill would lower borrowing costs for cities and States by 15 basis
points, which would save cities and States hundreds of millions of
dollars per year. That real-world impact is why this bill is so very,
very important.
Now, it is important to note that this bill does not undermine safety
and soundness. It does not require regulators to treat bonds that are
illiquid as liquid. It simply says that municipal bonds should be
afforded the same opportunity as corporate bonds.
The SPEAKER pro tempore. The time of the gentlewoman has expired.
Mr. CARNEY. Mr Speaker, I yield such additional time as she may
consume to the gentlewoman from New York.
Mrs. CAROLYN B. MALONEY of New York. Mr. Speaker, this is an
important bill. It will help the economy. It will help our cities and
States. It levels the playing field for cities and States. It saves our
cities and States, literally, hundreds of millions of dollars, and it
maintains the safety and soundness of our banking system. That is why
it had such a strong, overwhelming bipartisan vote in committee.
Mr. Speaker, I urge my colleagues to support this bill.
Mr. GARRETT. Mr. Speaker, I yield such time as he may consume to the
gentleman from Indiana (Mr. Messer), the sponsor of this piece of
legislation.
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
[[Page H386]]
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.
Mr. CARNEY. Mr. Speaker, I have no further requests for time. I would
just close by thanking the gentleman from Indiana (Mr. Messer) and the
gentlewoman from New York (Mrs. Carolyn B. Maloney) for their work on
this commonsense piece of legislation that will help towns,
municipalities, and States across our country.
Mr. Speaker, I yield back the balance of my time.
Mr. GARRETT. Mr. Speaker, I have two additional speakers.
I yield such time as he may consume to the gentleman from Maine (Mr.
Poliquin).
Mr. POLIQUIN. Mr. Speaker, again, I want to salute the gentleman from
Indiana (Mr. Messer) and the gentlewoman from New York (Mrs. Carolyn B.
Maloney) for the great work that they have done on this bill. It is
very important.
Mr. Speaker, I represent Maine's Second District, which is the west,
central, northern, and down east parts of our great State. Now, when
you drive in the State of Maine over some of our roads this winter, you
see frost heaves and potholes and everything else. If you go on some of
our bridges by the coast, you see there has been a lot of corrosiveness
that has taken place on those bridges because they are so close to the
salt water.
Now, it is so important to make sure that our State and our local
governments have the opportunity to borrow the money they need to
perform these very important infrastructure repairs.
When I was State Treasurer up in Maine, we used this process to sell
high-quality, liquid municipal bonds to investors around the world.
That would allow us to receive and secure the funding we need to, in
fact, repair our roads and bridges. Maybe a small town needs to improve
its sewage treatment facility or build a new landfill or improve its
water treatment facility. Well, these high-quality, liquid municipal
bonds provide the funds to do just that.
It is my opinion that banking regulators have made a mistake, Mr.
Speaker, because they include in the liquidity coverage ratio stocks
and corporate bonds and other government bonds, but they have left out
high-quality liquid, tax-free municipal bonds from that list of
securities that will qualify for the liquidity coverage ratio.
As has been mentioned here earlier before, sir, the municipal bond
market in this country is a $3.7 trillion market. There are thousands
of these bonds held in the hands of investors around the world. It is
clearly right and appropriate for these bonds to be included in this
list of assets such that banks can reach their liquidity coverage
ratio.
In doing that, Mr. Speaker, and in fixing this problem that Mr.
Messer and Congresswoman Maloney have found, in passing H.R. 2209,
State and local governments across the country will continue to be able
to have the funds they need to repair their own bridges and roads, not
just those in Maine. This will keep interest payments down for our
State and local governments, saving taxpayers millions of dollars.
One of the goals of government, of course, is to show fairness and
compassion for those that pay the bills, the taxpayers across America.
I am rising in support of this bill, H.R. 2209. I encourage all my
colleagues in the House, Republicans and Democrats, to please do the
same.
Again, I congratulate the gentleman from Indiana (Mr. Messer) and the
gentlewoman from New York (Mrs. Carolyn B. Maloney) for their great
work.
{time} 1615
Mr. GARRETT. Mr. Speaker, I yield such time as he may consume to the
gentleman from New Mexico (Mr. Pearce).
Mr. PEARCE. Mr. Speaker, I thank Mr. Messer and Mrs. Maloney for
producing this balanced, bipartisan piece of legislation.
The State of New Mexico has a geographical area about the same as
five Northeastern States. That area, though, has 55 million people to
pay the taxes to build roads, to build infrastructure, and to build
schools. In the equivalent geographical area, New Mexico has almost 2
million people to build all of those miles of roads.
Now, this is the effect of this legislation: it removes the financing
mechanism that States like New Mexico use--those Western, lightly
populated areas--municipal bonds to fund things like schools and roads
and infrastructure. Yet the committee that decided what category these
assets would fall into said that they are no good and that they are not
going to count in the liquidity requirement for institutions.
What that means is $3.7 trillion will evaporate out of that municipal
bond market. That is $3.7 trillion that would help us build
infrastructure and help us create better living for everybody in the
West. Yet this committee, which never visited New Mexico, appears not
to have looked at the quality of assets.
Mrs. Maloney, adequately, says it is not a question of safety and
soundness. Mr. Messer says that the default rate is four one-
thousandths of 1 percent. They obviously did not look at the quality of
the products. They simply said they are not going to qualify.
What that means is that financial institutions will no longer have
incentive nor space under liquidity requirements to hold municipal
obligations such as bonds. This is detrimental to the way of life in
the West.
I would like to congratulate again Mrs. Maloney and Mr. Messer for
bringing H.R. 2209 to us today to help be a partial cure to the
problems that people from other countries have levied on us. It seems
common sense; it seems useful; it seems good for the taxpayer and good
for the country. Let's pass H.R. 2209.
Mr. GARRETT. Mr. Speaker, I yield myself such time as I may consume.
Again, I want to thank Members on both sides of the aisle. I thank
all the sponsors of not only this legislation, but all the legislation
that we have had on the floor for the last hour here.
I was just thinking as this was wrapping up about what we will see
when we leave here and look in the newspaper tomorrow and see what sort
of media coverage Washington will get as to what we did on our first
day back.
There is always a hue and cry saying that Washington is broken, there
is no bipartisanship, and they are not passing any legislation to
create jobs and trying to get the economy going again. You hear about
that in the media all the time. As a matter of fact, you actually hear
it on the floor, with many Members coming down here saying
[[Page H387]]
that this House has not passed a single jobs creation bill in so many
days, weeks, months, and years, or what have you.
Well, let it be known today that we worked here in a bipartisan
manner, first in subcommittee, the full committee, and now here in the
House. We have four pieces of legislation. I know that some of the
legislation may have mind-numbing terminology and you may scratch your
head when you are talking about the liquidity coverage ratios, the
credited investors, LCRs, and all those sort of things. You might say:
Well, what does that have to do with the job creation? What does that
have to do with infrastructure creation? What does that have to do with
getting a new roof on my local school or a bridge built in my town?
What does that have to do with helping my neighbor actually get a job
when he has been out of work for a period of time? What does that have
to do with somebody in my family who is in a job right now, but no
opportunity for advancement and no pay raise for a long period of time?
These bills on the floor today have everything to do with all those
issues.
As we pass these job creation bills in a bipartisan manner, let the
word go out that we are doing exactly what the American public asked
Congress to do: to work together, get it done, get the infrastructure
in this country growing again, get the economy going again, and create
jobs again.
That is why it is important to say thank you again to both sides of
the aisle, and I encourage a ``yes'' vote on all four of these bills
today.
Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from New Jersey (Mr. Garrett) that the House suspend the
rules and pass the bill, H.R. 2209.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill was passed.
A motion to reconsider was laid on the table.
____________________