WASHINGTON — House Financial Services chairman Rep. Barney Frank, D-Mass., said he is “skeptical” about Securities and Exchange Commission chairman Christopher Cox’s proposals to boost disclosure and accounting standards for municipal market participants.
Speaking to reporters at an hour-long press conference yesterday on his committee’s agenda for the coming year, Frank said general obligation debt backed by the full faith and credit of states and localities is “very safe,” suggesting there is no need for federal lawmakers to impose additional regulatory burdens on sovereign state and local entities.
“This is a country that if a particular city is in trouble, the state’s going to step in,” he said. “They may lay off teachers, they may lay off cops, but they’re going to pay the bondholders.”
The comments are noteworthy because they are the first time Frank has publicly said he takes a dubious view to the muni initiatives Cox unveiled in July. So far, neither of the Democrats who head the committees with jurisdiction over such initiatives — Frank and Senate Banking chairman Sen. Christopher Dodd, D-Conn. — have indicated any interest in them.
Specifically, Cox asked Congress to consider legislation that would require municipal disclosure to be more similar to corporate disclosure as well as to clarify the legal responsibilities of muni transaction participants and require all muni issuers to use generally accepted accounting standards issued by the Governmental Accounting Standards Board. He also called for Congress to provide for an independent source of funding for, and SEC oversight of, GASB, and to make conduit borrowers subject to the same registration requirements in the tax-exempt market as in the corporate market.
Frank’s skepticism about Cox’s proposal came about after he was asked by a reporter if his committee planned to focus on the troubled bond insurers, some of which have suffered massive losses and credit rating downgrades because of their exposure to subprime mortgage debt.
Noting briefly that the committee’s panel on capital markets plans to hold a hearing on the bond insurers in February, Frank said he believes the underlying credits that the companies insure are safe, and that they should not be penalized for the insurers’ woes. “I do not want states and cities to be hit with an unjustified premium,” he said.