Final U.S. liquidity rules to exclude muni bonds -source

WASHINGTON Tue Aug 26, 2014 4:41pm EDT

WASHINGTON Aug 26 (Reuters) - U.S. banks will not be able to include municipal bonds in mandatory buffers of easy-to-sell assets under rules nearing final approval, a person familiar with the process said on Tuesday.

The U.S. Federal Reserve weighed whether certain individual cities' and states' debt should count, but did not include them in the final rules, set to be approved on Sept. 3 as part of a global agreement to make banks safer, the person said.

Under the rules, first proposed in October 2013, banks must hold enough assets that can be sold quickly so they can cope with customer withdrawals and post any required collateral in the event of a repeat of the 2007-2009 financial crisis.

The proposed rules, which were seen as tougher than the global accord known as Basel III, counted U.S. government debt and reserves held at the Fed toward the liquid asset buffer, but not municipal bonds.

That prompted pushback from city and state officials, who said it could raise their borrowing costs.

But the final version also will not consider municipal debt as easily sellable, according to the person familiar with the process.

Regulators have not publicly announced plans to meet next week. The Wall Street Journal first reported on Friday that municipal debt would be excluded under the final rules. (Reporting by Emily Stephenson; Editing by Karey Van Hall and Dan Grebler)