Legislation that would require municipal bonds to be rated similarly to corporate bonds was introduced today in the House.
Legislation that would require municipal bonds to be rated similarly to corporate bonds was introduced today by House Financial Services Committee Chairman Barney Frank, D-Mass., and House Ways and Means subcommittee chairman Richard Neal, D-Mass.
The Municipal Bond Fairness Act would eliminate the ability of rating agencies to use separate standards for municipal bonds and other bonds. “The practice of using a separate scale that the industry has employed for many years has in many cases caused high-quality general obligation bonds to be rated lower than comparable corporate bonds,” according to a press release issued by the Financial Services Committee.
Credit rating agencies that are nationally recognized statistical rating organizations would be required to use rating symbols consistently for all securities under the bill.
A companion bill, the Municipal Bond Market Support Act, is aimed at increasing demand and lowering borrowing costs for some municipal bonds by raising the bank-qualified limit for small issuers to $30 million from $10 million, a level that has existed since 1986. The new limit would be indexed to inflation.
“One of the most damaging and unfair aspects of the financial crisis is the negative effect it is having on our [ability] to deal with our infrastructure problems,” Mr. Frank said in the statement. Mistakes made by the financial services industry have contributed to an increase in the interest rates that state and local governments have to pay for public service projects, he said.
