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WASHINGTON, DC – The American Securities Association (ASA) today submitted a comment letter to the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency on the proposed implementation of the Basel III Endgame capital regulations applicable to large banking organizations and those with significant trading activity.
“Adopting this Proposal in any form would be entirely unjustified and will severely harm American capital markets, the broader economy, and job creation,” said ASA President & CEO Chris Iacovella. “The Proposal will also crowd out liquidity in the municipal, mortgage, and corporate bond market, which will make the financial system less resilient during the next financial crisis, whatever its origins. According to some analyses, the cost of capital for holding municipal bonds could increase by as much as 20 percent if the Proposal were adopted. While our membership could benefit from larger banks leaving the municipal and mortgage markets in the short term, these rules would harm issuers and secondary liquidity over the longer term, and we strongly oppose that outcome.”
The ASA shares the concerns of stakeholders across America that the Proposal would increase the cost of credit, reduce access to credit for consumers and businesses, and harm economic growth.
“One asset class that will likely be severely affected by the Proposal – but thus far has received little attention from banking regulators – are municipal bonds. Municipalities in the municipal bond market issue bonds to provide funding for infrastructure, school systems, public safety, hospitals, the climate transformation, and the basic needs of every community in America. We note the funding of these projects is very important to this administration’s fiscal agenda.
According to some analyses, the cost of capital for holding municipal bonds could increase by as much as 20 percent if the Proposal were adopted. Institutions subject to Basel III will therefore be disincentivized from trading or holding these bonds. This will drive up borrowing costs for municipalities ultimately raising costs or shrinking project scope for communities all over the country,” the letter notes. “The Proposal should be abandoned in its entirety, and the Federal Reserve, FDIC, and OCC should instead undertake an effort to holistically examine current capital standards in the U.S. and whether they support robust economic activity while maintaining critical safety and soundness objectives.”
Read the American Securities Association’s full comment letter here.
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About the American Securities Association
American Securities Association, based in Washington, DC, represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.