Final bank liquidity rule could sting muni market

|By:, SA News Editor

Maybe not wanting competition for federal government debt, U.S. regulators are set to approve a final liquidity rule next week reportedly excluding municipal bonds from being among banks' high-quality, highly liquid assets. Treasurys and balances held at the Fed, of course, would be allowed.

Wells Fargo (NYSE:WFC) - with $47.3B - is the largest holder of municipals among the four largest U.S. banks. It hasn't said how much of that amount is included in its liquidity tally, but did say it was compliant with the international rule and awaiting the final U.S. version.

Both banks and local governments had naturally argued to include munis in the final rule. "[This] will almost certainly decrease liquidity in asset markets disfavored by the rule," says ABA President Frank Keating.

Muni ETFs: MUB, PZA, TFI, XMPT, PRB, PVI, VRD, RVNU, FMB

Financial sector ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, FNCL, FINU, RWW, RYF, FINZ