The municipal market should not be excluded from the federal government's efforts to resolve the financial crisis, the Municipal Securities Rulemaking Board's new chairman told representatives of the securities industry gathered in New York City yesterday.
In remarks to the annual conference of the Securities Industry and Financial Markets Association, Ron Stack, the managing director and head of public finance at Barclays Capital, elaborated on his comments to reporters Monday that the MSRB plans to encourage Treasury Department and Federal Reserve officials to address tight liquidity in the muni market that's preventing state and local governments accessing capital markets.
"We're trying to say, 'As you the federal government are doing things, remember the municipal market,' " he said in a 25-minute speech before about 500 dealers at SIFMA's conference. "At a minimum, our municipal issuers need to be provided equal access to any facilities that are provided for the broader market."
The remarks are noteworthy because they appear to mark a new direction for the MSRB as it attempts to increase its profile in Washington, where municipal securities often take a back seat to equities and other financial products. Congressional staffers have often said in private that the MSRB is among the most obscure and unknown self-regulatory organizations.
While some market participants are wary that the board is stepping outside its mission in lobbying or advocating for policy on behalf of the industry, Stack strenuously rejected the idea.
"We are not an advocacy agency, we're a rulemaking agency," he said. " But we are going to say, 'Hey, don't forget the municipal industry. You're thinking about doing something in this area, here are five different proposals that could be done in the municipal area related to this. Here is the analysis. Here's a fact-based, data-based analysis of what would happen in each of the areas, OK, and you're the policy makers ... you decide what to do, but do not forget the municipal market.' "
Stack said one program that should be open to the municipal market is the Fed's Commercial Paper Funding Facility, which does not accept tax-exempt paper. The commercial paper program is one of a series of efforts rolled out by the Fed and the Treasury Department to ease credit strains for banks and corporations. But none of the efforts have directly addressed the borrowing concerns of state and local issuers.
Referring to the Fed's CP program, Stack said "that's something that should also be open to us," noting that issuers and money-market funds successfully gained access in September to the Treasury's insurance program for money market funds after tax-free funds initially were not included.
Initially, Treasury said, " 'Well, if we insure the tax-exempt money market funds, well, then that's a federal guarantee of tax-exempt debt and that would make the debt taxable,' " Stack said, referring to a provision of the tax code that prohibits federal guarantees on tax-exempt bonds. "Nah, nah, nah, that's nonsense. The fact of the matter is that you're guaranteeing the funds, not the securities, [which] are still tax-exempt."
Stack told reporters during a teleconference Monday the MSRB had sent letters urging the Treasury and the Fed to include the muni market in their rescue efforts.