WASHINGTON - Ratcheting up federal lawmakers' interest in the municipal securities market, House Financial Services chairman Barney Frank, D-Mass., announced Friday that he plans to hold a hearing on municipal bonds March 5.
Unlike a separate congressional hearing last week on bond insurers, Frank is seeking testimony particularly from local government issuers, said James Segel, special counsel to the committee.
"We're looking at what we can do, if anything, to help cities and counties borrow money right now because it is a problem, clearly compounded by the monolines and their involvement with CDOs," he said, referring to the risky collateralized debt obligations that bond insurers have guaranteed and now may split from their portfolios, which also include relatively staid municipal securities.
At issue is the availability and cost of credit for issuers and the corresponding impact to the economy if states and localities have to eliminate or scale back on projects and services, according to a statement released by the committee.
The statement also said that the committee will seek to examine the extent to which the bond insurance industry contributed to the collapse of the auction-rate securities market and what can be done to aid local jurisdictions. It warned that the impact on localities could be multiplied due to the slumping housing market and their dependence on property tax revenues to fund schools and other services.
"It is now clear that state and local governments have become the innocent victims of the credit crisis and they are being unfairly punished for market conditions far beyond their control," Frank said in the statement. "Cities and states may now be forced to pull back or significantly decrease infrastructure investments and other vital services, which is the wrong thing economically and will leave shortfalls in this critical area."
Frank's decision to discuss muni bonds comes after Rep. Paul Kanjorski, D-Pa., the chairman of House Financial Services' subcommittee on capital markets, held a Thursday hearing on bond insurers in which New York officials urged bond insurers, which have suffered downgrades and massive mark-to-market losses, to peel away their muni portfolios away from their riskier credits. Lawmakers and panelists also suggested that a federal insurance regulator may be a good idea as long as it does not supplant the existing state regulators.
It may be the first time in nearly 15 years that a House chairman has scheduled a hearing specifically on municipal securities. The last hearing was held in October 1993 by Rep. Ed Markey, D-Mass. to discuss a continuing disclosure bill when Markey was chairman of the House Energy and Commerce's subcommittee on telecommunications and finance.
Segel said Friday that there is no legislation before the committee, but they were eager to hear from market participants.