Banks Fret Over Fed’s Planned Liquidity Requirement: Muni Credit
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U.S. banks led by JPMorgan Chase & Co. and Wells Fargo & Co. have bought a record amount of municipal debt. That demand is now at risk under a Federal Reserve proposal that excludes local bonds from a list of easy-to-sell assets.
Banks added $63 billion of the securities in the year through June, more than any category of buyer, helping lower state and city borrowing costs as individuals yanked a record amount of cash from muni mutual funds, Fed data show. The companies hold about $390 billion of munis, the most since at least 1945 and about 10.5 percent of the market. Three years earlier, they owned about 6 percent.