The American Bankers Association has urged the Treasury Department not to draft overly broad regulations to overturn a recent tax court case involving PSB Holdings Inc., warning the rules could effectively impose a new tax on banks for investing in tax-exempt securities.

In a letter sent to the department last week, the group also cautioned that if the rules are not narrowly targeted, they could create a "distinct disadvantage" for banks when it comes to investing, and would go against the intent of the section of the tax code the regulations are intended to implement.

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