WASHINGTON - The National League of Cities and other government groups claim that states and localities are well suited to create a national nonprofit credit enhancement provider for municipal bonds because they have a long history of establishing pooled insurance programs. But some market participants are concerned that such an entity would be limited in its ability to boost investor demand for munis.

The market participants also say that if the NLC establishes a credit enhancer - which it hopes to do by as early as this summer with help from the federal government - it will need to overcome several obstacles. Chief among them will be gaining market acceptance, which will require structuring the entity to shield it from political decisions influencing its underwriting process as well as to ensure that it receives triple-A ratings from credit rating agencies.

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