A debatable rule proposal is prompting a slew of brokers and investors to call for a rewrite, as the effects on the municipal bond market portend calamity.
“In general, we recommend that regulations be reconsidered and preferably rewritten in general,” said Susan Joyce, head of market design at muni trading.
The comments were made Thursday at a roundtable hosted through the Securities and Financial Markets Industry Association, as representatives from several corporations vented their war of words with the proposed rule changes.
“As you know, the proposal has generated many complaints from many stakeholders across the political spectrum,” said Ken Bentsen, president and CEO of SIFMA. “A lot of this data comes from sources very external to the money industry. “
The proposed tweaks to the rules would require banks to raise and hold more capital in reserve, which could simply subject municipal bonds to standardized treatment while raising loan prices for municipalities. Last December, municipal market participants expressed fears that the new regulations could simply decrease the holdings of bank holders and limit liquidity.
The proposal went into effect last July and was approved through a consortium of federal agencies, adding the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve Board of Governors. Members of the Federal Reserve were involved in the proposal prior to its implementation. .
“We voted on this factor in a public meeting,” said Michelle Bowman, governor of the Federal Reserve Board of Governors. “If we take a look at the meeting, we’ll see that several of our board members expressed some pretty significant considerations about the proposal. and its content, how it’s calibrated, and what it chose to include. “
While top bank executives remain opposed to Basel, the concept of forcing banks to increase their capital balance sheets has supporters. “Once risk-based capital is higher, banks’ investment prices will be lower,” said Darrell Duffie, a professor of control and finance at Stanford University’s Graduate School of Business.
“Creditors are aware that safer banks are less likely to cause losses to creditors and will reduce investment spreads. “
The impetus for Basel III comes from a preference for making banks fail less, but banking experts point to a disconnect between the proposal and reality.
“They’re pouring all that time and effort into a capital proposition that, if it had existed, surely wouldn’t have made any difference to Silicon Valley Bank, First Republic, or Signature. That’s beside the point for me right now. this time,” said Gene Ludwig, managing partner at Canapi Ventures.
The regulations were created by the Basel Committee on Banking Supervision, which meets in Basel, Switzerland, and flies the flag of the Bank for International Settlements.
U. S. representatives on the Basel Committee are joined by the Federal Reserve Board, the Federal Reserve Bank of New York, the Office of the Comptroller of the Currency, and the FDIC.
Once the proposal was launched, it became a primary target for public comment that ended last November and then extended into January 2024. The American Securities Association responded with a letter signed by ASA CEO Chris Iacovella expressing his thoughts on the proposal. . effects on the municipal bond market.
According to the letter, “according to some analyses, the capital burden of holding municipal bonds could increase by as much as 20% if the proposal were adopted. Basel III establishments will be discouraged from trading or holding such bonds. This will result in higher borrowing prices for municipalities, thereby expanding prices or cutting the scope of projects for communities across the country.
Polk County, Iowa, is issuing $113 million in Series 2024A general obligation equity debt notes for the Des Moines Airport Authority’s new terminal project.
Munis posted losses in April, with a negative recovery of 1. 24%. Asset elegance is also losing 1. 62% year-to-date.
Alaska’s efforts for its cyclical revenues resulted in an upward revision of S
Polk County, Iowa, is issuing $113 million in Series 2024A general obligation equity debt notes for the Des Moines Airport Authority’s new terminal project.
Munis posted losses in April, with a negative recovery of 1. 24%. Asset elegance is also losing 1. 62% year-to-date.
Alaska’s efforts for its cyclical revenues resulted in an upward revision of S
Sen. Joe Manchin, D-Va. , has already pledged to try to repeal the rule in Congress.
April’s volume was $40. 456 billion across 653 issues, up 21. 2% from $33. 377 billion across 666 issues in 2023.
The transaction, initially planned for $1. 5 billion over 3 maturities, was scaled back and restructured, then restructured again to a 10-year maturity.
Independent and authoritative research for the bond-buying industry.