MSRB's Bagley makes temporary move to Fed to help with muni program

The Municipal Securities Rulemaking Board’s chief market structure officer is headed over to the Federal Reserve for a few months to provide expertise on its new muni short-term note program.

The MSRB announced Monday that John Bagley would be headed over to the Fed starting immediately. He will join the Federal Reserve Bank of New York for eight months to lend his municipal market knowledge toward the Fed’s new Municipal Liquidity Facility.

"John will be an extraordinary asset to the Federal Reserve as they implement solutions to support the $4 trillion municipal market that provides an essential source of financing for communities that are bearing the brunt of the COVID-19 crisis," said Ed Sisk, MSRB board chair. "The MSRB is committed to offering our data and expertise to help states, communities and investors on the road to recovery."

Earlier this month, the Fed announced the creation of the MLF to directly purchase $500 billion of short-term notes, with the Treasury providing $35 billion of credit protection to the Fed using funds appropriated in March through the $2 trillion Coronavirus Aid, Relief, and Economic Security Act.

The Fed said it would buy notes directly from states, counties with a population of at least 2 million residents, and cities with a population of at least one million residents. Only one issuer per state, city or county is eligible, though state-level issuers can use the proceeds to support additional counties and cities.

Some stakeholders, including lawmakers, have asked for those population parameters to be widened in letters sent to the Fed over the last few weeks. The Fed is set to release frequently asked questions on the MLF soon.

The Fed staffed up on municipal expertise when it hired veteran muni banker and former Treasury official Kent Hiteshew in March, a move many muni market participants applauded.

Hiteshew had recently been working as a strategic advisor at Ernst & Young and as a senior fellow at New York University. From 2014-2017, Hiteshew was the first director of Treasury’s Office of State and Local Finance, serving as Treasury’s point person on Puerto Rico.

The MSRB has been in contact with the Fed and has been providing data and expertise as needed, the MSRB said.

While Bagley is gone, the MSRB’s market structure and data management and analytics departments will continue to monitor and create reports on municipal market trade activity and COVID-19 related disclosures, the MSRB said.

The MSRB has a COVID-19 information page on its site where it posts a daily market trading summary, a weekly COVID-19 related disclosure summary and other industry reports. Last week, the MSRB received its first COVID-19 related disclosure of obligors unable to make principal and interest payments on existing bond issues. Earlier this month, the MSRB also received its first virus-related pending default, from a conduit borrower in Terre Haute, Indiana.

The MSRB is also planning to release an investor education guide as soon as this week.