New Bank Rule Would Be Costly for Cities, States
A new financial regulation meant to ensure that banks are able to weather a panic would have an unpleasant side effect — making it more expensive for cities and states to fund projects.
The liquidity coverage rule, finalized by bank regulators in early September, would require banks to hold enough safe, liquid assets, such as Treasury bonds, that would be sellable even in a crisis to fund their operations for at least 30 days. Part of the 2010 Dodd-Frank financial reform law, the regulation is meant to prevent a repeat of 2008, when investment bank Lehman Brothers found itself unable to meet its creditors' demands and failed.
But by excluding municipal bonds from the definition of assets considered safe and making them less attractive to banks, some lawmakers and financial industry leaders say the federal government may have unnecessarily raised the cost of doing business for cities and states, which rely heavily on issuing bonds for projects such as highways and schools.
“If there’s less demand for bonds, obviously you end up paying higher interest rates,” said Richard Ellis, state treasurer for Utah and president of the National Association of State Treasurers. “I don’t know if you can quantify the impact” of the rule, Ellis said, “but it will mean less projects to fund.”
Local governments and industry groups had been vocal about the potential harm that the rule would do while it was being considered by officials at the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. They noted that some municipal bonds were at least as liquid as the corporate bonds included in the proposed rule.
When the agencies finalized the rule, Fed Governor Daniel Tarullo acknowledged those concerns and said that the Fed staff would look into amending the rule to include municipal bonds as high-quality liquid assets. It's not clear when a fix would be proposed, although implementation of the rules begins in January for the biggest banks and will be completed by 2017.
Treasurers have at least one powerful advocate pushing for the change — New York’s Chuck Schumer, a member of the Senate Banking Committee and the No. 3 Democrat in the Senate.
After confronting Tarullo over the treatment of municipal bonds in a September congressional hearing, Schumer wrote a letter to the regulators saying “it is hard to understand how all three federal regulators finalized ... with such glaring inconsistencies. ... The broad exclusion of all municipal bonds from counting as [high-quality liquid assets] under the current rule makes no sense on the merits and could have disastrous side effects, so I hope the regulators will heed our call and reconsider it quickly.”
Regulators likely will revisit the topic and categorize some segment of the roughly $3.6 trillion municipal bond market as liquid, speculated Michael Decker, co-head of municipal securities at the Securities Industry and Financial Markets Association. “We’re convinced that there would be a negative effect” on state finances if the rule is kept as is, Decker added.
Some analysts believe that the regulators got it right — that municipal securities are not as liquid as high-quality corporate bonds or Treasury securities, and that leaving them out of the liquid assets category will not harm small governments’ finances.
In a note written in response to the final rule, Wells Fargo’s Brian Jacobsen wrote that the impact of the rule on the municipal bond market would be “negligible” and that “banks have already prepared for these regulatory changes, so a lot of the market adjustment has probably already taken place.”
Others, however, warn that the rule could cause trouble over time.
“Even though in the near term the impact would be masked ... when it could manifest itself is when you have a considerable downturn and municipals will continue to sell off for a considerable period because some of the liquidity providers — the big banks – may not be as quick to pick up munis as other assets that would help their liquidity ratios,” said John Dillon, managing director at Morgan Stanley Wealth Management.
Dillon said that, while most municipal bonds are held by individual investors interested in their tax-exempt interest payments and are not liquid, there are enough widely traded municipal bonds to be included in the rule.
Leaving them out, he said, would ultimately hurt taxpayers. “Higher borrowing costs in munis, for whatever reasons, would just mean mom and pop — the residents of every state — paying more for their borrowing," Dillon said. "It really does have a trickle-down effect.”
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Public Entity Partners extends its congratulations to the city of Lewisburg’s fire department. Earlier this month, the department was notified that it now has a Class 3 Public Protection Classification. This ranking puts the department in the top 4 percent in the state and the top 6 percent in the nation. Return to the topTake Time to Care for Officers Under Your Command
"The applause has to go to our guys,” says Lewisburg Fire Chief Larry Williams. “They've done a great job. It also reflects the quality of our dispatchers and our water department. It's taken a lot of people and a lot of hard work to get to this point.”
Chief Tim Weitzel, Lower Burrell Police Department, PA
As the commanding officer of your police department, you know that officer safety is always the number one priority. Managing your department in this manner is intuitive to you because it lends itself to supporting the golden rule that we all learn very early in our careers, usually from an FTO or other senior officer who told us, “The most important thing you will do during your shift is to make sure you go home safe when it is over.” Respectfully,
As police officers, we think this way, we wear protective gear, and we operate in the field with a heightened situational awareness so we are mentally prepared to take on what this dangerous job will inevitably throw at us. As the commanding officer, you encourage this mindset in your officers, you send your officers to training, and you budget for ballistic vests, patrol rifles, Tasers, and plate carriers so you know you are sending your people into the field with as much safety equipment as possible. Given all of this, the fact remains that we will always lose colleagues to the violence and risks of our profession, just as my department did in 2011 when we lost a police officer to gunfire while we were serving an arrest warrant.
The impact of losing an officer was devastating to our department. We are an agency of 16 sworn full-time officers and one non-sworn administrative member. Just like many agencies of our size, our small number lends itself to developing personal relationships with each other that make us very close. You spend so much time with coworkers as family that they become a second family. So in 2012 when I took command of my department, I had a heightened sense of urgency when it came to trying to keep my officers safe, because I liken it to keeping my family safe, and I felt the immense hurt that came in the wake of our loss.
As you might imagine, I increased their training, updated their equipment, and purchased new equipment to try to increase their safety. I instituted new policies and updated existing ones, all of which are important to establish, but fail to achieve the goal if they are written and filed away in a policy manual merely as a paperwork exercise, which I will further explain in the next paragraph. In constantly evaluating safety, I would read statistics, officer safety-related articles, and attend safety-related seminars. It was one such seminar hosted by PennPRIME where I heard Gordon Graham speak in support of the “Below 100” initiative, and how if officers would just wear seat belts then the goal of driving police officer duty-related deaths below 100 officers annually would be achieved.
After hearing Graham speak, I returned to my agency determined to make the Lower Burrell Police Department a supporting participant of the “Below-100” initiative. To accomplish this, I planned to post a directive in the station introducing the officers to the initiative and reference the existing policy on seat belt usage which requires the officer to wear the seat belt. In other words, I was going to do more paperwork! When I sat down to type the memo, I realized that I was engaging in a mere paperwork exercise as I had seen in the past. It was at that point I reflected on past memos, directives and policies which I saw come down from above but not followed-up on and at times not enforced. It was as though the Chief was doing a paperwork exercise on a checklist. In other words, the Chief wrote the policy, posted it and checked it off of his to-do list, never to be revisited again. I saw this time and time again, and though the directive was written for a positive or practical reason, the procedures it outlined never became part of the operational fabric of the department. I write about this to make the following point: If you, as the head of your agency, are not going to make sure “it” gets done, then who is? The “it” in this case is ensuring your officers wear their seat belts. When I made the comment at the top of this paragraph that I wanted the Lower Burrell Police Department to participate in the “Below-100” initiative, I was making a misstatement. It is not the department that puts on a seat belt, it is the individual officer that does. I should have stated that I wanted the officers of the Lower Burrell Police Department to participate in the initiative. I know that may seem semantic, but it was at that moment that I learned the lesson taught to me by the management before me, unbeknownst to them or me at the time, of the accountability for my actions.
In conclusion, our primary goal is make sure our officers go home safe when their tour of duty ends, and if you don’t see to it that your agency’s goals are reached, then who will? Don’t just make enforcing seat belt usage a paper policy. Stay vigilant when it comes to keeping on your officers or your staff about seat belt usage. Tell them flat out what the rule is and more importantly what your expectations for them are. Call them out on it when you see they are not wearing it and make sure you put yourself in a position regularly to see if they are wearing it. Don’t undermine yourself by letting the senior people or the people you are closer with slide when you see they are not in compliance. I found it necessary to call out both senior and junior officers when they forgot to wear their seat belts. The officers wear the seatbelts now, not only because the policy requires it, but because they got tired of me harping about it. In the end, if it gets them wearing their seatbelts and keeps them safe, then it is a win I will take no matter what motivates them to act. I tell my officers that I will do whatever I can to keep them safe, even if, sometimes, it is in spite of their own actions. I ask you to take the time to care and do the same for your people.
Chief Tim Weitzel
Lower Burrell Police Department
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Preparing for disasters can seem like a daunting task, often causing many to walk away from the planning process altogether. In fact, 82 percent of Americans agree: "If someone could make it easy for me to be prepared, I'd do it."
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