[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.

                          ____________________