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Proposed Reg Might Curtail Banks' Muni Demand

Banks have been increasing holdings of municipal bonds in recent years, but a proposal by the Fed, OCC, and FDIC would make munis less attractive.

By William Selway, Bloomberg | Updated on February 14, 2014

U.S. banks poured more than $200 billion into state and local-government debt since the onset of the financial crisis six years ago, boosting their share of the $3.7 trillion market to a two-decade high.

Now, if federal regulators have their way, California Treasurer Bill Lockyer says banks next year will have more incentive to buy debt sold by Saudi Arabia or Botswana than by U.S. municipalities. The result, he says: higher costs for taxpayers.

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