(Recasts with confirmation from Treasury, details and
WASHINGTON, April 17 The U.S. Treasury
Department is forming a unit on state and local finance to
coordinate its responses to developments in the country's $3.7
trillion municipal bond market, a Treasury spokesperson said on
According to the spokesperson, J.P. Morgan's Managing
Director for Public Finance Northeast Region and Housing Groups
Kent Hiteshew will become director of the new unit in May.
Alongside liaising with state and municipal officials, the
unit will monitor developments in the bond market and work on
policies on public pensions. The unit, the establishment of
which was first reported by the Wall Street Journal, will also
develop policies for other pressing issues that emerge.
Nearly two years ago John Cross left his position as
associate tax legislative counsel at Treasury, where he had
spearheaded major municipal bond initiatives, to lead the
Securities and Exchange Commission's municipal securities
office. Since then, Treasury has spread its municipal finance
activities among various departments.
The SEC is the market's chief regulator, but Treasury and
the Internal Revenue Service can also intervene on municipal
bonds. At the same time, Treasury runs bond and lending programs
for states and local governments, such as the Build America
Bonds created in the 2009 economic stimulus plan.
Since Cross left Treasury, Detroit filed the biggest
municipal bankruptcy case in U.S. history and Puerto Rico's
finances unraveled so much that last month the territory sold
$3.5 billion bonds in the biggest municipal junk deal the market
had ever seen. President Barack Obama is adamant the federal
government will not bail out either issuer but his
administration is also closely watching their financial states.
Federal agencies in general have recently increased
oversight of the municipal bond market, mostly under the
financial reform law known as Dodd-Frank. Over the last year the
SEC has unleashed a torrent of enforcement that has set
precedents on better disclosures from issuers and brokers and on
protecting individual buyers.
(Reporting by Lisa Lambert and Douwe Miedema in Washington;
Additional reporting by Supriya Kurane in Bangalore; Editing by
Gopakumar Warrier and Chizu Nomiyama)