Municipal Bonds Could Benefit from HQLA Final Rule
On April 1, the Federal Reserve Board of Directors issued a final rule amending its liquidity coverage requirements at major banks. The final rule amends the definition of High-Quality Liquid Assets (HQLA), which banks must hold in reserve under new federal regulations, to include some municipal bonds. A previous set of rules had specifically excluded all municipal bonds from the HQLA designation. The new rule does not include all municipal bonds, however, and delineates numerous restrictions on which bonds might qualify.
This Issue Brief provides background and a summary of the final rule, and its implications for states.