SUPPORTING CHANGE OF MUNICIPAL SECURITIES DEFINITION IN THE VOLCKER RULE

WHEREAS,  the Volcker Rule is a specific component (Section 619) of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act originally formulated, in part, by former US Federal Reserve Chairman Paul Volcker; and

WHEREAS, the Volcker Rule essentially aims to restrict commercial banks from engaging in speculative transactions that do not directly benefit their customers; and

WHEREAS, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve were tasked with designing the specific rulemaking that would implement the Volcker Rule and issued a proposed form of the Rule for public comment which closed on January 13, 2012 ; and

WHEREAS, the regulations are schedule to go into effect on July 21, 2012; and

WHEREAS, the proposed rule seeks to exempt municipal securities from the section related to banking institutions engaging in certain proprietary trading activities in keeping with the statute and Congress’ intent; and

WHEREAS, the proposed rule defines “municipal obligations” too narrowly as “obligations of states and political subdivisions thereof” which is under-inclusive and differs from the well-established and relied upon definition of municipal securities that is found in the Securities Act of 1934; and

WHEREAS, if made final, the definition in the proposed rule would exclude thousands of municipal securities, disrupting the municipal market and raising costs for state and local governments; and

WHEREAS, given that one of the principal purposes behind the Volcker Rule is to mitigate risk, the lack of uniformity would unfairly treat economically similar debt instruments differently from one another for the purposes of municipal securities trading; and

WHEREAS, expanding the definition of municipal security in the Volcker Rule would pose no additional risk to banks or the banking system as municipal securities are among the safest assets in the US capital markets,

NOW, THEREFORE, BE IT RESOLVED that those agencies tasked with the final rulemaking amend the definition of municipal securities in the proposed rule and have it align with the common definition of municipal securities found in the Securities Act of 1934 that has served for the past 80 years.