Kenneth Gibbs, president of the Municipal Securities Group at Jefferies & Company, Inc., SIFMA board member and Chair of SIFMA’s Municipal Securities Division, testified today before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises at a hearing addressing the impact of the Dodd-Frank Act on municipal finance.
“The $3.7 trillion municipal bond market is a vital sector of our capital markets,” said Gibbs in testimony. “It is important for the municipal market to function soundly and efficiently in order to protect investors and other market participants and to ensure the lowest possible cost of financing for state and local governments and their citizens…The [Dodd-Frank Act] includes a number of provisions that are having, or will have, an effect on municipal finance, the municipal bond market, and municipal market participants.”
In testimony, Gibbs focused on four areas of Dodd-Frank that effect municipal finance, including:
- Section 975 of Dodd-Frank relating to the registration and regulation of municipal advisors, including H.R. 2827, legislation to amend those provisions;
- The Volcker rule’s impact to municipal securities;
- Section 978 of Dodd-Frank related to funding the government Accounting Standards Board; and
- Provisions of the derivatives portion (Title VII) of Dodd-Frank in the contexts of swaps use in relation to municipal finance.
Gibbs noted the numerous comment letters SIFMA has filed with federal regulators on all of these provisions, and the suggested changes regulators should implement to ensure the continued proper functioning of the municipal financing system.
Gibbs also noted three issues that remain unresolved:
- The SEC has not yet finalized its municipal advisor registration rule, and the proposed final rule includes numerous provisions that would go against congressional intent and statutory authority, including issues related to the underwriter exclusion. H.R. 2827 would help address these issues by clarifying key provisions of the statute.
- The Volcker Rule, as proposed, would take too narrow an approach to the municipal securities exclusion in the statute and, if adopted as proposed, would bifurcate the market and increase borrowing costs for states and localities with no benefit to bank safety and soundness.
- The GASB funding provision in Dodd-Frank is misguided because it imposes the funding obligation on FINRA-member dealers, parties that have little to do with GASB’s activities. The FINRA rule related to the GASB funding provision is also unfairly implemented because it fails to tax non-FINRA dealers and is inappropriately based on trading activity. It also provides a virtually unlimited funding source for GASB with little oversight over its budget or activities.