Bills combat Fed regulations threatening to stifle local infrastructure projects and fix the SIFI designation process
WASHINGTON – November 5, 2015 – (RealEstateRama) — The House Committee on Financial Services marked-up and passed two of Congressman Luke Messer’s (IN-06) bills, H.R. 2209 and H.R. 3857.
The first bill (H.R. 2209) encourages financial institutions to continue to invest in local communities following new banking regulations that threaten to slow or even stop cash flow for crucial infrastructure projects like roads, bridges, or even schools.
In the wake of the 2008 economic downturn, regulators created new international banking standards that require banks to have enough cash-on-hand or High-Quality Liquid Assets (HQLAs) to cover their cash outflows for 30 days in case of a future financial meltdown. Unfortunately, under the new banking rules, state and local government bonds are not considered liquid assets even though some corporate bonds and some foreign government bonds are considered such assets.
This regulatory misstep has discouraged financial institutions from holding municipal debt and many are concerned this policy will force governments to reduce or even stop projects that are financed with municipal bonds. Congressman Messer’s bill fixes current banking regulations to allow municipal bonds to be considered HQLAs.
“A lot of times, it seems like bank regulations have very little impact on our day-to-day lives,” said Congressman Messer. “But, that’s just not the case here. By excluding all municipal securities from HQLA eligibility, financial institutions are discouraged from holding municipal debt. This has a real-world impact. It could raise borrowing costs for state and local governments to finance infrastructure projects and force municipalities to reduce, or even stop, projects that are financed with municipal bonds. We can’t allow Federal bureaucrats to promote policies that disincentivize investment in our local communities.”
State Treasurer Kelly Mitchell had this to say about the bill: “H.R. 2209 allows banks to keep the costs of borrowing low to our communities which strengthens local governments’ ability to meet the needs of Hoosiers throughout our state. I want to thank Congressman Messer for his leadership on this important issue.”
The second bill (H.R. 3857) that passed through the House Financial Services Committee on Wednesday requires Federal regulators to follow current law when designating non-bank Systemically Important Financial Institutions or SIFIs.
Under Dodd-Frank, the Financial Stability Oversight Council (FSOC) has the ability to determine that a non-bank financial institution is “systemically important.” Under the law, non-bank SIFIs are subject to increased supervision by the Federal Reserve and enhanced prudential standards if the company’s financial distress poses a threat to the financial stability of the U.S. Unfortunately, the Fed has failed to set clear standards for designating non-bank SIFIs, as required by Dodd-Frank, and has also failed to establish clear exemptions for companies that should not be designated.
“I have heard time and time again that the SIFI designation process is flawed and lacks transparency,” said Congressman Messer. “My bill fixes that and requires banking regulators to follow the law. Basic fairness requires that FSOC and the Fed carry out their statutory duties before increasing costly regulations and designating more companies for heightened supervision.”
Congressman Messer says he will continue to work to ensure both bills are heard for consideration on the House Floor.